HUYA Inc.

Hello, ladies and gentlemen. Thank you for standing by for the third quarter 2022 earnings conference call for Hu Ya Ying. At this time, our participants are in a listen-only mode. Today's conference call is being recorded. I would now like to turn the call over to Ms. Han Yu Liu, Company Investor Relations. Please go ahead.

Hello, everyone, and welcome to Hu Ya's third quarter 2022 earnings conference call. The company's financial and operational results were issued earlier today and are posted online. You can also view the earnings press release by visiting the IR website at ir.huya.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 Huya, and Ms. Ashley Wu, Vice President of Finance. Management will begin with prepared remarks and the call will conclude with a Q&A session. Before we continue, please know 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 expressed today. Further information regarding this 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 applicable law. Please also note that WHOYA's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. WHOYA's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our VP of Finance, Ashley Wu, who will read today's prepared remarks on behalf of Mr. Dong. Please go ahead.

Hello, everyone. Thank you for joining our conference call today. I'm pleased to deliver the following brief remarks on behalf of Mr. Dong. Although my co-heading continues to impact us during the third quarter of 2022, We managed to further grow our active user base year over year and quarter over quarter and improve our top and bottom line on a sequential quarter basis. Our total net revenues were approximately RMB 2.4 billion and our non-GAAP net income was RMB 106 million. for the third quarter. In terms of user growth, Hoya Life's average mobile MAUs reached 86 million for the third quarter, a low single-digit increase from a relatively high base in the summer of last year due to the hurry-up promotion. This growth is encouraging, particularly as we have implemented more stringent marketing channel sending strategies to help contain costs. Also, our efforts to enhance user interactive experience and offer attractive gaming and entertainment content not only contributed to the increase in user scale, but also through user engagement across our platform. In the third quarter, user's average daily time, and the app's next month user retention rate. stabilized at above 17%. Next, let me share with you some updates about our product and technology advancements. We have been embracing the trend of virtual live streaming, including developing digital humans and providing a water live broadcasting tool on our platform. In addition, we have recently focused on further integrating virtual streaming technologies with our broadcasting session. Our goal here is to create more immersive viewing experiences and inspire more interesting interactions and high quality content production for our users. Specifically, We recently introduced a virtual lighthouse tool on Huya Mini 2's open platform. It brings streamers a new light scene in which the image and actions of the streamers are automatically recognized. The background and the streamer can also be separated and cut out, which lets streamers transform the light scene to a performance stage where they can sing, dance, and play musical instruments on a virtual stage. The audience also has their virtual characters that they can control and use to interact with the streamer. This feature has been well received by our broadcasters and during the summer, more than 100 virtual events were held on our platform, including live concerts and fan meetups, which strengthened bonds between broadcasters and users. Moreover, by partnering with the game CrossFile and building on virtual reality technology, Koya launched the industry's first virtual viewing feature for tournaments live broadcasting during the finals of Crossfire Pro League in August. After entering the virtual esports venue, pandemic for this game, users were able to choose which game they wanted to support, create an avatar, wear the corresponding team uniform, and get together with fellow viewers. In addition to watching the competition, Users could also freely move their avatar around the venue and view the scenes in the game, just as you would in a live event. Additionally, users could express support for their favorite team by sending out virtual firework gifts. As the competition evolves, so does the background of the venue, bringing the audience and even more immersive competitive atmosphere. This new viewing feature gained solid traction, spurring a 30% increase in viewers' engagement in interactive activities during the finals. In the 2022 season of League of Legends World Championship, or World 2022, which just ended earlier this month. We also initiated several industry-leading upgrades. First, building on our success in the CrossFile event, we set up an enhanced virtual venue, specifically designed for World 2022, to provide an immersive virtual viewing option. We also extended the HDR-capable display support for watch viewing to include our mobile app, web page, and PC client for both live streaming and on-demand video, offering users more precise game scenes across different devices. Furthermore, we introduced a tournament assistant feature for the event that greatly simplifies users' ability to obtain tournament-related information. It allows users to access the historical match data covering teams and players, their skill values, and other key data in real time without leaving the live page. Users can simplify touch their mobile screen or move the mouse over a player's profile image or team name. During the Rose 2022, many matches were played either late night or early morning in China due to the time zone differences. In addition, the replay videos of those competitions were very popular among users. of last year's event with those replays taking top spots in our video ranking. Meanwhile, we introduced incentive activities to encourage original video content creation in relation to the world's 2022 theme. Those UGCs are available in this tournament's discussion board of our Tiger ChickChat community, allowing users to easily participate in event discussions and interactions. With all of our efforts and operational expertise in esports, Huya continues to achieve leading market share for this highly anticipated event. Following the domestic live streaming regulations introduced in May, our techful product and operation adjustments impacted our live streaming revenues. As a result, our domestic live streaming revenues in Q3 slightly decreased by low single digits. Compared with the second quarter, we have been working to mitigate the impact by dramatically adjusting our monetization strategies. We will also continue to comply with regulations and improve our corresponding technologies and operating practices to support the healthy and sustainable development of our platform. In summary, we believe our effort to improve live streaming technologies, explore new product features, and enrich our quality content will help us better engage with our users. These measures are designed to place us in a stronger position to capture future opportunities in the game and live streaming market. In light of the persistent challenging market conditions, it is also vital for us to continue to exercise prudence and strengthen our business and financial foundation. We will strive to further optimize our operations throughout the organization and maintain our competitive edge while we continue to navigate the fluctuating market. This concludes Mr. Dong's remarks. Now, I will continue with some updates on our content enrichment and diversification. In the first quarter of 2022, we broadcasted around 65 third-party professional esports The most popular included the summer season of League of Legends Pro League , King Pro League and Crossfire Pro League , as well as ESL Pro League . Notably, the number of peak concurring users of the LPL summer improved by 57% compared with the previous edition. As we continue our ROI-led strategy for tournament procurement, we have fewer licensed esports tournaments in the third quarter of 2022 compared with the same period last year. However, total viewership of those events reached approximately 660 million, representing growth of 12% year-over-year. On the front end of our self-organized esports tournaments and entertainment pre-GC shows, we broadcasted 23 events during the third quarter, generating total viewership of approximately The first series of Honor of Kings and the Peacekeeper Elite All-Star Summer Cup, both our major Huya-branded tournaments, continue to perform well this summer, demonstrating the appeal of our mobile esports events. It is also worth mentioning that Our longstanding Huya Kung Fu Carnival, a mixed martial arts competition, held its sixth season and become an influential IP for us, linking the live broadcasting industry and the physical sport. This time, the event also features competitions in the wheelchair setting of Henan Songyang Academic. adding elements of Chinese traditional culture. It was well received by our audience, with the number of event viewers on our platform almost doubling compared with the previous season. Let me provide some updates on our operational optimization efforts. Beginning in April, We strategically adjusted our overseas business to allocate resources to key areas. This initiative has been resulted in a more streamlined and efficient business, narrowing our operating loss in this segment. We are looking forward to further benefit from this adjustment in our overseas business. In the first quarter, our optimization initiative with broadcaster-related costs and bandwidth usage helped us to reduce the quarter's total cost. Driven by savings from sales and marketing expenses, we are encouraged by the decline in total operating expenses in Q3, saving approximately 27%. year-on-year. Next, moving on to our Q3 financial details. Our total net revenues were RMB $2.38 billion for Q3, a decline from RMB $2.98 billion for the same period last year. Livestreaming revenues were RMB 2.02 billion for kill-free, compared with RMB 2.6 billion for the single year. The decrease was primarily due to a decline in the number of paying users and average spending per paying user on Hoya Life. As the recent micro and regulatory environment adversely affected paying user sentiment. Advertising and other revenues were RMB 361 million for Q3, compared with RMB 374 million for the same period last year, primarily due to soft demand for advertising services. resulting from the challenging microenvironment. In Q3 2022, content sublicensing revenues make a relatively large contribution to advertising and other revenues, mainly due to the fact that revenues from sublicensing of esports tournaments broadcasting rights are recognized. according to event schedules and experienced fluctuations between different theories. Cost of revenue decreased by 17.6% year-over-year to RMB $2.04 billion for Q3, primarily due to fixed revenue, sharing fees, and content costs, as well as bandwidth costs. Revenue-sharing fees and content costs decreased by 15.7% year-over-year to RMB $1.79 billion for Q3, primarily due to the decrease in revenue-sharing fees associated with the decline in live-streaming revenues and lower costs related to people-contracting. The bandwidth cost decreased by 35.4% year-over-year to RMB $115 million for Q3, primarily due to improved bandwidth cost management. As a result, of . Here, I would like to . The course of OOL was 2022, broadcasting . Our Q4 and went through . period last year. We will again call the gross profit margin for Q3. Primarily due to lower revenues, gross margin was 14.4 for Q3. Excluding share-based commission expense, non-USD, Gap growth was RMB 351 million, and non-gap growth margin was 14.8% for Q3. Research development expenses decreased from 16.0% over the year to around 179%. due to decreased personnel-related expenses and share-based compensation expenses. Sales and marketing expenses decreased by 45.8% year-over-year to RMB $124 million . Primary due to decreased marketing and promotional fees as well as personnel related expenses. General and administrative expenses decreased by 1.8% year over year to RMB $79 million for Q3. Other income was RMB $44 million for Q3, compared with RMB $95 million for the same period of 2021, primarily due to lower tax refunds and government subsidies. As a result, operating income was RMB 12 million for Q3, compared with RMB 83 million for the same period of 2021. Interest and Short-Term Investment Income were RMB 72 million for Q3, compared with RMB 63 million for the same period of 2021. Income Tax Expenses were RMB 20 million for Q3, compared with RMB 41 million for the same period of 2021. primarily due to lower taxable income. Share of income in equity method investments net of income taxes worth RMB 0.05 million for Q3 compared with RMB 379 million for the same period of 2021, primarily due to the investment income related to a disposal of equity investment in the third quarter of 2021. Net income attributable to Huya Inc. was RMB 60 million for Q3, compared with RMB 524 million for the same period of 2021. Non-GAAP net income attributable to Huya Inc. was RMB $106 million for Q3, compared with RMB $180 million for the same period of 2021. Non-GAAP net margin was 4.5% for Q3. Diluted net income per ADS was RMB $0.25 for Q3. Non-GAAP-diluted net income per ADS was RMB 0.44 for Q3. As of September 30, 2022, the company had cash and cash equivalents, short-term deposits, short-term investments, and long-term deposits of approximately RMB 11 billion. compared with RMB 10.7 billion as of June 30, 2022. With that, I would now like to open the call to your questions.