HUYA Inc.

Hello, ladies and gentlemen. Thank you for standing by for the first quarter 2021 earnings conference call for HUYA Inc. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to Ms. Dana Cheng, company investor relations. Please go ahead. Hello, everyone, and welcome to HUYA's 2021 first quarter earnings conference call. The company's financial and operational results were issued earlier today and are posted online. You can also view the earnings price release by visiting the IR website at ir.gooia.com. A replay of the call will be available on the IR website in a few hours. Participants on today's call will be Mr. Rongjie Dong, Chief Executive Officer of Gooia, and Ms. Catherine Lu, Chief Financial Officer. Management will begin with prepared remarks, and the call will conclude with a Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements made under the state's public provisions of the U.S. Private Security and Litigation Reform Act of 1995, forward-looking statements involving hearing risks and uncertainty. As such, the company's results may be materially different from the views expressed today. Further information regarding these and all other risks and uncertainties included in the company's prospectus and other public sellings as well as the USSEC. The company does not assume any obligation to update any seller looking statements except as required under applicable laws. Please also note that we have early press release and this conference call include discussion of unobstructed gap financial information as well as unobstructed non-gap financial measures. whereas press release contains the reconciliation of the unmodified non-GAAP measures to the unmodified mode directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Long Jie Dong. Please go ahead.

Hello, everyone. Thank you for joining our conference call today. We are pleased with the continued momentum we saw across our business in the first quarter which set us on a solid path to begin the new year. Total net revenues for Q1 increased to RMB 2.6 billion, demonstrating growth of 8% year-over-year. Despite the higher comparable revenue base associated with the pandemic lockdown period in Q1 2020, We continue to see new growth and believe that our relentless focus on content enrichment and product innovation will drive the future growth of our business and create more value for our users. The user growth that we enjoyed during the pandemic lockdown period has persisted and we continue to bolster our user community. In Q1, mobile MAUs of Huya Live reached 75.5 million, up slightly from the same period last year. Additionally, the next month's retention rate of our Huya Live app remained stable at over 70% in Q1. Mobile users have been the pillars of our business and our primary focus. In the fourth quarter this year, mobile users contributed to over 85% of Huya live streaming revenues, and they also constitute close to 80% of our core daily active users on Huya Live. Our mobile-first strategy has enabled us to become the industry leader, and we plan to further emphasize and grow this constituency, focusing on mobile users as our primary user metric. We believe our investments in content and products will gradually pay off. Our accumulated content has become the engine driving us forward, attracting new users and fulfilling more online needs as users are finding our platform to be progressively more comprehensive, attractive, and convenient. In Q1, we continued to reinforce our product offerings and the content library with a number of successful initiatives. In March, we launched an open platform for interactive features to offer more innovative gameplay and improves the uniqueness of Huya to game studios, broadcasters, and the viewers. A series of interactive features have been developed, including gift-dropping , broadcaster game battles , viewer-led interactive games, We believe the new features will not only strengthen our value proposition in the industrial value chain, but also help shape a new model for game operations and improve our capabilities in monetization diversity. As a first step, we cooperated with Chief Keeper A-Lite and embedded the interactive gameplay features within the game's live streaming and our Peacekeeper Lite channel. For example, when a game broadcaster strikes a chicken dinner or receives certain virtual gifts, the live streaming room will be triggered to send out designated in-game rewards for viewers to claim. The success of such new features has assisted Peacekeeper Elite to both acquire new traffic and retain existing users, and can also provide our viewers and broadcasters with more fun and immersive experience. Our open platform for third-party application developers also continued to expand in Q1. By the end of Q1, there were close to 220 tools developed and over 600,000 broadcasters had used these tools. On a quarter-over-quarter basis, the daily active users and the daily active broadcasters those who have used the third-party applications from the open platform grew over 100% and 40%, respectively. In April, we signed a licensing agreement with Tenjin Sports and locked down the exclusive broadcasting rights in China for League of Legends Pro League , League of Legends Developed League , and the LPL All-Star Weekend Series, as well as related licensing rights from 2021 to 2025. Securing these exclusive broadcasting rights will enrich our content offerings and strengthen our collaboration with Tenjin Sports to explore various opportunities. With that, I will now turn the call over to our CFO, Catherine, to share her insights on the operating metrics and the financial details. Catherine, please go ahead.

Thank you, Mr. Dong. And hello, everyone. Following Mr. Dong's remarks, I will start from the updates on content enrichment and diversification. In Q1, we broadcasted 92 third-party esports tournaments, among which the top tournaments included LPL Spring, PGIS and KPL Spring. Total viewership for these tournaments reached around 535 million in Q1. representing 41% year-over-year growth. On the front of our self-produced content, we organized 36 esports tournaments and entertainment shows and generated a total viewership of 195 million, representing 73% year-over-year growth. Recall that in Q1 last year, COVID-19 impacted the schedule of third-party esports tournaments and the hosting of our own offline events. We are glad that tournaments and events are back, which is also reflected in the higher viewership. Huya's game for Peace Spring event, i.e. Huya Men, Nanbei, He Ping Jing, Quan Ming Xing, YaoQingSan is a top-performing self-produced event in Q1 that has leveraged the influence of Huya's celebrity broadcasters to compete with professional gamers. Additionally, we organized the regional tournament for Team Fight Tactics within Huya's community and helped the rising game accomplish another signature event. on the entertainment PDC shows aside. I'm the styling team, i.e. I'm and fashion styling competition show and last winner, a role playing detective show are the leading examples of Q1. Moving on to our overseas business, the MAUs of our overseas business was around 25 million in the first quarter. slightly higher than the same period last year. Our strategy has been shifted to focus on regions and countries with higher monetization potential. And as a result, our overseas revenues almost doubled year over year. And our overseas loss also narrowed down. Next, I will walk you through our financial highlights. In Q1, our total net revenues grew by 8% year over year. to over RMB 2.6 billion. Our live streaming revenues increased by 5% year-over-year close to RMB 2.4 billion in Q1. The growth was primarily due to the increase of revenue for paying users. The number of paying users for VR Live in Q1 reached 5.9 million compared with 6.1 million for the same period last year. mainly because the users spend more time per day and are more willing to pay on our platform during the pandemic lockdown period last year. Advertising and other revenues increased by 55% year-over-year to close to RMB $213 million in Q1, primarily driven by revenues from content licensing. Our profits continue to improve in Q1, Our non-GAAP growth profit increased by 8% to RMB 531 million. Non-GAAP growth margin was 20.4%. Our non-GAAP operating profit increased by 7% to RMB 242 million. Non-GAAP operating margin was 9.3%. Our non-GAAP net profit increased by 1% to RMB 266 million. and our non-GAAP net margin was 10.2%. Now let me move on to our financial details. If not specified, all growth rates are on year-over-year terms. Cost of revenues increased by 7.9% to RMB 2.1 billion for Q1, primarily attributable to the increase in revenue sharing fees and content costs. Revenue sharing fees and content costs increased by 14.1% to RMB 1.7 billion for Q1, primarily due to the increase in revenue sharing fees in relation to higher live streaming revenues and the increase in spending in esports content. Bandwidth costs decreased by 24.4% to RMB 182 million for Q1. primarily due to improved management in bandwidth costs and continued technology enhancement efforts. Growth profit increased by 8.2% to RMB 514 million for Q1. Growth margin was 19.7% for Q1. Research and development expenses increased by 27.6% to RMB 199 million for Q1, mainly attributable to increased personnel related expenses. Sales and marketing expenses increased by 35.7% to RMB 145 million for Q1, primarily attributable to the increased marketing expenses to promote the company's content, products, services, and branding. General and administrative expenses decreased by 6.8% to RMB 84 million for Q1, mainly due to lower share-based compensation expenses. Operating income increased by 21.6% to RMB 162 million for Q1, and operating margin was 6.2% for Q1. Non-GAAP operating income which exclude share-based compensation expenses increased by 6.7% to RMB 242 million for Q1. And non-GAAP operating margin was 9.3% for Q1. Income tax expenses increased by 4.9% to RMB 39 million for Q1. Net income attributable to Boya Inc. for Q1 increased by 8.4% to RMB 186 million. Non-GAAP net income attributable to Hoi An Inc. for Q1, which excludes share based compensation expenses, gain on fair value change of investments and equity investee's investments and equity investee's partial disposal of its investment, net of income taxes increased by 0.9% to RMB 266 million. Diluted net income per ADS was RMB 0.77 for Q1, and non-GAAP diluted net income per ADS was RMB 1.1 for Q1. As of March 31, 2021, the company had cash and cash equivalents, short-term deposits, and short-term investments of RMB 10.7 billion compared with RMB 10.5 billion as of December 31, 2020. The increase was primarily due to net cash provided by operating activities of RMB 166 million for Q1. With that, I would now like to open the call to your questions. Thank you. As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press the pound or hash key. 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. Your first question comes from the line of Lei Jiang from Bank of America, Mary Lynch. Please ask your question. Hi. Then my first question is, do you have any new opinions on the competitive environment? Especially recently, I have seen some of our competitors, such as Bilibili, they also have a live broadcast recently, especially the game live broadcast. It looks good, so I want to hear about the competition, especially the competition with Bilibili. Is there anything more you can share with us? Then the second one is to see one of our quarters, which is advertising and other revenue. In fact, the rate is quite fast. In the past two seasons, it was almost the same trend. So I want to see if the main driver here is from advertising, or maybe it has something to do with some of the new business we set up before. Thank you management for taking my question. Two questions here. First, can you give us some updates in the competitive landscape, especially the competition with Bilibili, which is a good growth in life journey in recent quarter? Secondly, any color on growth of our advertising and other revenue? What's the major driver here? Thank you.