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spk01: Hello, ladies and gentlemen. Thank you for standing by for the third quarter 2021 earnings conference call for Qtosho Inc. 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, Angela Wong. Please go ahead, Angela.
spk00: Thank you very much. Welcome everyone to the third quarter of 2021 Earnings Conference Call of True Total Inc. The company's financial and operational results were released via Newswire Services earlier today and have been made available online. You can also view the earnings press release by visiting the IR section of our website at ir.truetotale.net. Participants on today's call will include our CEO, Mr. Eric Tan, and our CFO, Mr. Xiaolu Zhu. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views best today. Further information regarding these and other risks and uncertainties is included in the company's prospectus and other public filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under equitable law. Please note that Truth Hotel's earnings press release and this conference call include discussions of unaudited gap financial measures as well as unaudited non-gap financial measures. Truth Hotel's press release contains a reconciliation of the unaudited non-gap measures to the unaudited gap measures. I will start by reading out Eric's commentary on the business. Thank you and thanks everyone for joining today's conference call. The second half of the year has been difficult for us as we try to align our business lines into a more efficient structure, while many of our advertising customers facing the operating and financial pressures of their own. We continue to observe the negative effect on advertisers' confidence in the spending due to the economic headwinds and regulatory actions in the advertising market and the overall Internet sector. It is the uncertainty or the lack of visibility going forward that has dictated much of advertising customers' budgeting decisions. We expect the fourth quarter of the year and early next year to continue to be under pressure as there has not yet been sign of a straight upward momentum. For our business, as we have stated in previous quarters, while we can't control the wider industry variables, we focus on putting effort into improving operating efficiency. We believe the foundation we laid in 2021 will be a solid step towards long-term sustainable growth for Chitouqiao. One of the bright spots of our results in Q3 was Midu Novo's continued growth in user expansion and content creation. Midu's DAU averaged around 11 million in the third quarter, up from 10 million we achieved in the second quarter, and about 65% increase compared to the same period a year ago. We continue to invest into building a rich content offering and innovative format of interaction to reach users, most notably through our proprietary content creation platform and the mini drama series. In the meantime, we will also take a more disciplined approach in future quarters and make sure Meidu on a standalone basis can break even and turn cash flow positive on an operational basis in the second half of 2022. Excluding Midu and certain impairment charges, the rest of the company is still on track to the first breakeven year since our IPO. The result of 2021 so far is not as solid as we have hoped at the beginning of the year, but as we implementing more cost control measures in the fourth quarter, we are going to have better operating efficiency and operating results for coming quarters and a more solid foundation for the long-term sustainable growth of Chutotiao. Thank you very much. This concludes Eric's remarks, and I will now turn the call over to our CFO, Xiaolu.
spk02: Thank you, Eric and Angela. And again, thank you, everyone, for joining today's call. Our net revenues for the third quarter were RMB 966 million, with our pool of RMB 41 cents. and the quarterly average DAU of $27 million and MAU of $119 million, due to the tightening regulatory environment and the constrained budgets of our advertisers. Let's look at costs and expenses in a bit more detail. Please note, I will be referring to non-GAAP measures which exclude stock-based compensations. Cost of revenues were RMB $268 million, a decrease of 27% year-on-year, due to more efficient budgeting with our IT expenditures despite increasing content procurement costs. As a result, we generated RMB 697 million gross profit and 72% gross margin. Gross margin improved year over year and remained flattish sequentially. Our sales and marketing expenditures for the second quarter totaled RMB 958 million, increased by 41% year-on-year, and as a percentage of revenue, it came to 99%. which represented a 39 percentage point increase from a year ago, due to a combination of lower revenue base and increased investment in growth, the user base of middle novels. Our RMD expenses were RMB 118 million during the quarter, which was 12% of revenue, decreased by 4% compared to a year ago. GNA expenses were RMB 161 million during the quarter, which was over 17% of revenues. The increase was mainly due to an additional expected credit loss provision of RMB 134 million. Exclude that, G&A expenses counted 3% of total revenues. The credit loss was mainly resulted from the default of certain commercial bills issued by our advertising customers from 2020. As Eric mentioned earlier, some of our advertising customers, especially those from the real estate sector and some of the online sectors, are facing great operating and financial pressures in 2021, and the default was a result of that. We have taken careful approach toward these customers in 2021, and these credit losses will only impact our results in the second half of 2021. And we don't expect this will carry over to 2022. We made an operating loss of around RMB 516 million in the third quarter of 2021. After breakeven in Q4 last year, our year-to-date loss has been the result of our ramped-up investment in Meidu Novels, excluding Meidu and the impalement charts for credit losses. We still expect the rest of the company to breakeven for the full year 2021 and beyond. As of September 30, 2021, the company had cash, cash equivalents, restricted cash, and short-term investments of RMB $862 million or US $134 million. compared to RMB 986 million as of December 31st, 2020. For the next quarter, IEQ4 2021, we expect revenue to be ranging between RMB 850 million and RMB 900 million. Thank you very much. That concludes our prepared remarks today. We are now open for questions. Operator, please proceed.
spk01: Certainly, sir. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please note there might be a slight pause as we collate the questions. Once again, it is star one to ask questions. As there are no further questions at this moment, now I'd like to turn the call back over to the company for closing remarks.
spk00: Thanks again for your time. If you have any further questions, please do not hesitate to contact us. Have a good day.
spk02: Thank you. Have a good day.
spk01: Thank you. This concludes our conference call. You may now disconnect your line. Thank you.
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