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spk09: Overall, we are very confident about the stable growth and sustainable development in the future. Thank you, Vicky.
spk08: Thank you. This concludes our answer.
spk05: Thank you. Thank you very much. If there are no further questions now, I would like to turn the call back over to the company for closing remarks.
spk09: Well, thank you once again, everyone, for joining us today. If you have any further questions, please feel free to contact the company and our investor relations through the contact information provided on our IR website at ir.leach.fm or the Pianche Group investor relations. Thank you.
spk05: This concludes the conference call. You may now disconnect your lines. Thank you.
spk07: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. Thank you. Thank you.
spk01: Thank you.
spk05: Hello, ladies and gentlemen. Thank you for standing by for Li Zhiying's third quarter 2022 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'll now turn the call over to your host, Effie Kang, head of capital markets for the company. Please go ahead.
spk09: Thank you very much. Hello, everyone, and welcome to Li Zhi Inc. Third Quarter 2022 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. Zerlong Li, and our acting CFO, Ms. Shen Fang Lu. 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, our earnings highlights presentation and a webcast replay of this conference call will be available on the IR section of our website at ir.libg.fm. Before we continue, please note that today's discussions will contain forward-looking statements made under the Safe Harbor provisions of the US Private Secretive 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's 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 Gap Financial Measures as well as Unaudited Non-Gap Financial Measures. Please refer to Li Zhi's earnings press release for reconciliation of Unaudited Non-Gap Measures to Unaudited Gap Measures. I will now turn the call over to our COO, Mr. Zhe Longli. Please go ahead.
spk06: Hello, everyone. Thank you for attending Li Zhi Group's
spk09: Hello everyone, thank you for joining our 3rd Quarter 2022 Earnings Conference Call.
spk06: In the third quarter of 2022, we will further promote the dual-bundle strategic development of interactive entertainment and voice-to-speech. The overall business will maintain a stable growth trend. In terms of revenue and net profit, we have reached a new high. In the third quarter, the total mobile device average monthly active users reached 10,970,000. The monthly total paid users reached 47.7 million. The revenue of this quarter reached 5.65 billion RMB. The total growth was 12%, and the return growth was 10%. By continuously optimizing the product and operation strategy, we have advanced the development of core technology and improved the efficiency of global organization. We have achieved GAAP-level profit in four consecutive weeks. The net profit is increased by 5% to RMB19.8 million. In the current red light environment, our business maintains a stable growth trend. In the third quarter of 2022, we continue to advance our dual-pillar approach of interactive entertainment plus audio-based social networking business.
spk09: we maintained steady growth in our overall business development while achieving new highs in both revenue and net income. In the third quarter, our total average mobile MAUs totaled 49.7 million. Average monthly paying users amounted to 477,000. And the revenue reached the RMB 565 million, up 12% year-over-year and 10% quarter-over-quarter. We also made great strides to optimize our products and operational strategies while promoting the development of our core technologies and boosting organizational efficiency across our global business. Thanks to these efforts, we achieved our fourth consecutive quarter of net income on a debt basis, which rose 5% quarter over quarter to RMB 19.8 million in the third quarter. Amidst the current macro conditions, our steady business growth and continued profitability are a strong testament to our market competitiveness and the sustainability of our business model. Next, I'd like to share more details regarding our business development in the third quarter.
spk06: In terms of Indian entertainment business, we continue to deepen the eco-construction of the Indian community, promote our product governance, enhance the competitiveness of our products, to create a highly participatory and active audio and video entertainment interaction community, and further release the commercialization potential of audio and video entertainment business. In the third quarter, we started from user experience, which optimized and enriched the functionality of product form and diversification. Based on our original interactive entertainment ecosystem, We have recently launched the short audio screen module to support users' immersive listening and production of wonderful short audio screen content. And with the diversified audio screen activities in the field, we encourage users to explore the innovative interaction method of short audio screen plus voice social media to enhance the community atmosphere of audio screen. In order to further improve the sensitivity and participation of users, We optimized the management mechanism of users and continued to upgrade user service and consumer experience. In the third quarter, the average number of more active users in the audio and video entertainment business continued to grow to 9.5 million, and the penetration rate of users increased to 19.1%. The average payment amount of users also achieved an effective increase. This also promotes the revenue growth of the product entertainment business.
spk09: In terms of the audio entertainment business, we continue to cultivate our audio community ecosystem by enriching our product matrix and enhancing our product competitiveness to create a highly active and engaged interactive audio entertainment community. For the unlocking commercialization potential of our audio entertainment business, We unveiled diverse product features and functions in the third quarter to elevate the user experience, notably based on our original interactive entertainment ecosystem. We launched the short audio content module, enabling users to enjoy immersive listening and producing short audio content. Meanwhile, leveraging a broad array of audio activities in our platform to boost the interactivity within our community we encourage the users to explore the innovative and interactive format of combining short audio content with audio-based social networking. In addition, to further strengthen user sickness and engagement, we optimize our user management mechanism to achieve dynamic, upgrading user services and improving user experiences. In the third quarter, the average mobile MAUs of our interactive audio entertainment business grew to 9.5 million, with its user penetration rate climbing to 19.1%, accompanied by an improvement in the average spend per paying user, contributing to our audio entertainment business revenue growth.
spk06: We focus on the development of the content creators at the end of the middle and long term, and upgrade the creator's non-stop policy. to encourage creative content. On the one hand, we continue to strengthen the construction of tools in the synchronization of audio and speech, AI noise reduction, BGM recording, and so on. This has optimized our creative tools and improved the basic creative experience. For example, in the short audio and speech module, we launched the sound filter function that can be visualized in one minute, and the sound filter function that can be visualized in one minute, to provide the content creators with a flexible, diverse, and easy-to-use creative environment, and to attract creators to release more high-quality works to broadcast and share on the site. On the other hand, through targeted operations, we created a diversified live topic and launched a diversified event. In terms of our content creator ecosystem, with our focus on developing mid- and long-tail content creators, we upgraded our creator support policies
spk09: to encourage the creation of high-quality content. We continue to improve our creation tools and functions, including audio script synchronization, AI noise reduction, and BGM reception to enhance the overall creation experience. For example, we load out one-minute visual recording tools, 3D immersive audio filters, and other features in the newly launched Shorter Audio Content module. These features foster a flexible and easy-to-use audio creation environment, attracting more creators to produce and share high-quality audio content on our platform. In addition, through targeted operational activities, we generated diverse live streaming topics and launched a variety of contests and events while upgrading and innovating the creator competition system to motivate creators and drive their enthusiasm. We also launched new functions with a range of innovative, customized virtual gifting options to help creators generate income and enhance the commercialization efficiency.
spk06: In terms of globalization development, we based on the improvement of globalization capabilities, further improve the construction of internationalized teams, and actively explore opportunities in the overseas market, gradually establish products and ecosystems, On the product side, we continue to optimize the product form of global social products, TRApp, to integrate real-time interaction and online entertainment functions, constantly strengthen the concept of online space, and establish a better product system. Through the optimization of social tools and the simplification of user channels, users can enter online personal space at once. at any time to wake up friends or through the open personal space for real-time interaction, effectively improving the real-time social experience. TRF's user participation and active user level have been further improved. New user-friend interaction rate and human-to-human use market have also maintained a rising trend. In the third quarter, Regarding our global development, we have pivoted and focused on enhancing our globalization capabilities.
spk09: As a result, we further advanced our global team building and continue the exploring overseas market opportunities and refining our product matrix ecosystem. On the product end, we continue to optimize the features of our global social product, TERF, by integrating real-time interactions and online entertainment as part of our continuous efforts to build an interactive online space and a well-rounded product system. The integration of our social tools together with simplified user patterns enables users to enter their personal online space with one click and call their friends or interacting real-time in their public audio space, hence improving users' real-time social networking experience. As a result, TIA's user engagement and activity grew further, and both the new user-friend interaction rate and average time spent per user maintained upward trends. In the third quarter, the average daily time spent per user increased by 34% year-over-year, and the monthly average user-group participation rate rose 94% year-over-year. At the end of September, the number of pairs of friends' connections grew by 56% compared with the same period last year.
spk06: In addition, in terms of international team building and ability improvement, we continue to expand the team of international talent in the core business areas overseas, attract local talent, and open cooperation with overseas universities to strengthen the reserve of international talent. In terms of global team building and capability improvement, we continue to expand our global talent pool in core business regions, cooperating with international colleges and attracting local talents.
spk09: We aim to enhance our globalization capabilities, expanding talent cultivation and product operations to technology advancement in order to achieve breakthroughs in our international business.
spk06: In terms of technology development, since the launch of the Autonomous Technology Integrated Platform in August, we have continued to integrate core technologies and services more comprehensive application in various businesses, and strengthen support for the middle and back end of the business. By upgrading the automation capability of the testing platform, we have increased the testing efficiency of the team and shortened the entire process from product development to online. In addition, we are also continuously strengthening the RTC, which is the technical platform for audio and video streaming. As for technology development, since unveiling our in-house hybrid cloud computing platform, VoiceCloud, in August, we have continued
spk09: to integrate core technologies and services. At the same time, we have promoted voice cloud applications to various business segments to boost our business backend and middle platform support. By upgrading the automation capabilities of our testing platform, we improved our team's testing efficiency and shortened the entire process from research and development to product launch. In addition, We have been ramping up the technical capabilities of our self-developed RTC real-time audio and video streaming technology platform, .me, and instant messaging platform, VoderX. Our initiatives include expanding their business scope, promoting their application in diverse scenarios, facilitating the continuous innovation of audio products, and ultimately empowering our business.
spk06: The priority of the user's interests is to create value for the user. This is the development concept that we have always insisted on. In the process of promoting globalized business development, we also pay great attention to the data security and privacy of users. Moreover, We are also actively promoting the information security management system under the international standardised organization ISO ISO 27001 and privacy information management standard ISO 27701 certification. Through the continuous online platform data protection system, we strive to meet the highest international standard of data security and data privacy protection. strengthen the trust between the platform and the user, and fully protect the user's privacy.
spk09: Our long-standing philosophy is to prioritize our users' interests and strive to create value for them. While developing our global business, we have placed a significant emphasis on user data security and privacy protection. Recently, we have also been actively working on obtaining the certification of ISO 27001, the Standard for Information Security Management Systems, and ISO 27701, the Standard for Privacy Information Management Systems. Through continuously improving our platform's data protection system, we are committed to complying with the highest international standards in data security and privacy to fully protect users' rights and interests and fortifying a relationship of trust with our users.
spk06: At the end of October, the 9th anniversary of the establishment of LiZi Group, we released a brand new mission. To create the world's largest voice platform, to help people connect with each other through voice, to communicate more closely, to live a happier life, In mid-October, we celebrated Li Zhi's 9th anniversary and announced our brand new mission and vision to be the world's biggest audio platform
spk09: using sound to make people feel closer and live happier. Driven by our mission and vision, we will actively promote our strategic development with our unwavering effort to advance globalization, pursue excellence, and create greater value for our users and society at large.
spk06: Thank you, everyone. Next, please welcome our CEO, Ms. Lu Chengfang, to introduce us to the financial performance.
spk09: Thank you all. With that, I'll now turn the call over to our acting staff member, Ms. Chengfeng Lu, who will discuss our financial results in more detail.
spk02: Okay. Thank you, Zilong, and hello, everyone. Our third quarter results are a testament to our strategic execution ability, with quarterly revenues growing by 12% year-over-year and 10% quarter-over-quarter to a new record high of RMB $565.2 million. As we increasingly endeavor to optimize our operational efficiency, we achieved a profit for the fourth consecutive quarter, our gap basis in third quarter of 2022, with land income growing 5% sequentially to RMB 19.8 million. Going forward, we aim to continuously develop our product metrics, strengthen core technological capabilities, and unleash our commercialization potential to achieve sustainable growth over the long term. I'd like to provide a brief overview of our financial results for the third quarter of 2022. In the third quarter, our total net revenues were RMB 565.2 million, representing an increase of 12% year-over-year, primarily due to growth in average user spending on our audio entertainment products. Cost of revenue was RMB 376.2 million in the third quarter of 2022. representing an increase of 6% year-over-year, primarily due to an increase in the revenue sharing fees to accountant-creators and the company's revenue group, and partially offset by decreases in the salary and welfare benefits expenses related to decreases in operation headcount and share-based compensation expenses. Gross profit was RMB 189.1 million in the third quarter of 2022. representing an increase of 25% year-over-year. Long-gap gross profit was RMB 111.8 million in the third quarter of 2022, representing an increase of 24% year-over-year. Gross margin for the third quarter of 2022 increased to 33% from 30% in the third quarter of 2021. And long-gap gross margin for the third quarter of 2022 grew to 34% from 31% in the third quarter of 2021. Operating expenses were RMB 176.6 million in third quarter of 2022, compared to RMB 191.3 million in third quarter of 2021. Research and development expenses were RMB 78.3 million in third quarter of 2022, representing a year-over-year increase of 7%. The increase was primarily due to the higher salary and welfare benefits expenses and rental expenses. Selling and marketing expenses were RMB 71.2 million in the third quarter of 2022, compared to RMB 88.2 million in the third quarter of 2021, primarily due to the decrease in branding and marketing expenses, partially offset by the increased salary and welfare benefits expenses. The company will evaluate and adjust its marketing strategy and budget based on the company's performance, operational needs, and marketing conditions. General and administrative expenses were RMB 27.1 million in the third quarter of 2022, compared to RMB 29.7 million in the third quarter of 2021, mainly driven by a decrease in share-based compensation expenses and other miscellaneous expenses. Operating income was RMB 12.5 million in the third quarter of 2022, compared to a loss of RMB 40.1 million in the third quarter of 2021. Land Gap Operated Income was RMB 20.2 million in the third quarter of 2022 compared to a loss of RMB 30.1 million in the third quarter of 2021. Land Income was RMB 19.8 million in the third quarter of 2022 compared to a land loss of RMB 37.1 million in the third quarter of 2021. And Land Gap Land Income was RMB 27.5 million compared to Land Gap Land Loss of RMB 27.2 million in the third quarter of 2021. Basic and diluting loan income per ADS were RMB $0.38 in the third quarter of 2022, compared to basic and diluting loan loss per ADS of RMB $0.73 in the third quarter of 2021. Long-gap basic and diluting loan income per ADS were RMB $0.53 in the third quarter of 2022, compared to long-gap basic and diluting loan loss of RMB $0.54 in the third quarter of 2021. As of September 30, 2022, We had cash and cash equivalents, shorter investments, and restricted cash of RMB 623.21 million. Okay, this concludes all of our prepared remarks today. I will now open the call to questions. Operator, please go ahead.
spk05: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question from the phone, please press star 11 and wait for a name to be announced. 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 questions 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. Once again, to ask questions, please press star 11.
spk00: There will be a short silence while questions are being collected. Reminder, if you'd like to ask a question, please press star 11 on your telephone. Moment for the first question.
spk05: We have a question from the line of Vicky Wei from Citi. Please proceed.
spk07: Good evening, Mr. Manager. Thank you for accepting my question. Congratulations on the company's performance over the period. 我有两个小问题,第一个是可不可以请管理层给我们大家分享一下我们现在海外业务的发展情况以及所需要投入费用的数额。 我的第二个问题是在我们现在经济增长、放缓、文官环境充满挑战的情况下,我们是如何看待国内产品的长期盈利的签订? Thanks management for taking my question. I have two questions. The first one is, will management share some color about the overseas business development as well as the amount of investment expense? My second question is, will management share some color about your thoughts? So when domestic product profitability potential in the longer term amid slowing growth and challenging medical conditions. Thank you.
spk04: Hello, Vicky. I'm Marco. I'm here to answer your question. The first question is about the development and investment costs of overseas businesses. Our overseas business development mainly revolves around the three directions of the product technology team. First of all, in terms of products, we are developing new products for different overseas markets. It revolves around a multi-product strategy. by using some of the accumulation in core technology and product operations to make more international breakthroughs. In the US market, we are also continuously optimizing and updating our TR app to improve the real-time interaction and online social experience of some users. We see that the user's interaction rate and use of the market in the third quarter is still maintaining a very good upward trend.
spk09: The first question is answered by Marco, and I will translate for him. So the first question is about the overseas business development and investment expense. For the development of our overseas business, we actually mainly focused on three aspects, product, technology, and the team. In terms of product development, we are incubating new products targeting different overseas markets and focusing on our diversified product matrix strategy. And we are aimed to leverage our core technology capabilities and experiences in product operation to achieve breakthroughs in our international business. So for the U.S. market, we are also continuously optimizing and integrating the TIA app to improve user experience of real-time interaction and online social networking. And we are seeing that in the third quarter, the users' interaction rates and average time spent per user continued a very good upward trend.
spk00: Thank you for the questions. Ms. Wei, do you have any follow-up questions?
spk09: Yeah, I think Marco has some disconnection problem when answering the questions. I will continue his answers as he mentioned about the technology and the product and the team. So next, I can share more insights about the technology. So on the technology front, we actually further strengthen the application of our in-house hybrid cloud computing platform called Voice Cloud in many different business segments. And we also expanded our business scope, as mentioned by our CEO, Mr. Lee, earlier. And throughout continuously unleashing the technical potential, we actually achieved more innovations in voice technology. And we have also promoted refined and customized adjustments and iterations for our overseas products. And these have improved the user experience and fostered the business development. In addition, and regarding the team building Marco has mentioned, and the talent training in our overseas markets, we actually continue to focus on the target market to actively expand the local teams and improve our operational capabilities in both the international and the local fronts This has actually made a solid foundation for our globalization strategy. And in terms of the actual investment expense, in the third quarter, our overall investment in overseas operations accounted for no more than 10% of the total operating expenses. It includes the expenses related to sales and marketing and local office operations and the international team building, example. So overall, we make long-term plans for resource allocation and based on different stages of business development. This has balanced our input and output. We also strictly control and dynamically adjust the investment scale, including the timing and the specific strategies of the investments to ultimately maximize the operational efficiency. And in the future, we hope that our overseas business will bring us more diversified revenue sources and improve the overall profitability of the group and achieve solid business development. Yeah, I think Marco has returned to the call. So Marco can answer the next question about the challenging macro and future profitability potential. Okay, thank you. Okay, thank you.
spk04: Okay, thank you. The audio and video entertainment business is a relatively mature business in our group. In the current macro environment, we quickly made strategic adjustments to the market environment, focused on the core needs of users in product functions, and carried out more detailed management of the user's life cycle and the生態 of the manufacturer in operation. I will translate for Marco for the second question.
spk09: During the third quarter, we reached a very good performance and new record highs for both total revenues and net income, and achieved a profit for the fourth consecutive quarter. entertainment business is actually a relatively mature segment within our group. And under the current macro environment, we are able to make timely and quick adjustments to our strategy based on our insights in the marketing environment. And in terms of the product functions, we focused on meeting the core needs of our users. And in terms of the operation-wise, we continue to refine our management of the user's entire lifecycle and the content creator ecosystem. This strategic adjustment also helped us improve our operational efficiency and increase the profitability effectively.
spk03: Okay.
spk04: In the long term, we believe that domestic business has a very good potential for growth. With the rise in the penetration rate of audio and video, The market size is also expanding further. In the future, we will continue to expand the core user group in audio and video entertainment. And through diversified operation activities, innovative play methods to improve the user's desire to pay, promote the increase in the conversion rate of the user's payment and the growth of revenue. Then in terms of cost and cost structure, we will adjust the market feedback to the dynamic at different points. In the mid to long term, the domestic business still has tremendous growth potential. And with the increase in the user penetration rate of the all joint entertainment business, the market scale is also further expanding.
spk09: And in the future, we will continue to expand the core user groups in the order entertainment sector and increase users willingness to pay through diversified operational activities and innovative functions and ultimately promoting the growth of paying user conversion rates and our overall revenue. In terms of our cost and expense structure, we will also dynamically adjusted based on the market feedback at different stages and continue to refine our user acquisition strategy and improve overall operational efficiency, help us achieve sustainable profitability in the domestic business.
spk04: Yes, in general, I am very confident in the stable and continuous development of our business. Thank you.
spk09: Overall, we are very confident about the stable growth and the sustainable development in the future. Thank you, Vicky.
spk08: Thank you. This concludes our answer.
spk05: Thank you. Thank you very much. If there are no further questions now, I would like to turn the call back over to the company for closing remarks.
spk09: Well, thank you once again, everyone, for joining us today. If you have any further questions, please feel free to contact the company and our investor relations through the contact information provided on our IR website at ir.leach.fm or the Pianche Group investor relations. Thank you.
spk05: This concludes the conference call. You may now disconnect your lines. Thank you.
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