HUYA Inc.

Hello, ladies and gentlemen. Thank you for standing by for the first quarter 2023 earnings conference call for Huya Ying. At this time, all participants are in the listen-only mode. Today's conference call is being recorded. I'll now turn the call over to Ms. Han Yu Liu, Company Investor Relations. Please go ahead.

Hello, everyone, and welcome to Huya's first quarter 2023 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.guya.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. Rongjia Dong, Chief Executive Officer of Guya, 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 note that today's discussion will contain forward-looking statements made on the safe harbor provisions of the US 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 WHOIA's earnings press release and its conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. WHO-YAS 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. Do.

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. Do. In the first quarter of 2023, in the soft micro environment and seasonal headwinds, we achieved steady development, maintaining a stable user scale year over year, and delivering total net revenue of RMB $1.95 billion and non-GAAP net income of RMB $85.5 billion. During the quarter, we continue to make improvements in our content offerings, products, and technologies in preparation for a more favorable market environment ahead. On the user side, Huya Life Mobile MAUs reach 82.1 million in the first quarter, up slightly compared with the same period last year. The first quarter is typically a low season for live streaming activities due to the Chinese New Year holidays. Furthermore, given China's reopening early in the first quarter this year, users and broadcasters dedicated more time to offline entertainment activities. With this in mind, we continue to spend prudently on promotional and marketing channels, drifting a 37% year-over-year decline in sales and marketing expenses in the first quarter. We believe our appearing esports and entertainment program offerings as well as our continued efforts to enhance our products with interactive features, help us sustain user engagement during the period. We have been closely monitoring changes in the dynamic market environment and striving to quickly and flexibly refine our content and operational strategies to better meet our users' needs. Next, Let me share with you some updates on our recent product and technology development. In March, we held Ho Ya Boon Night, our annual gala event and our first large-scale offline event after more than a year. Ho Ya Boon Night recognizes and rewards our broadcasters, talent agencies, and various business partners and feature great performances by renowned singers and our most popular streamers. This year, we also introduced a virtual stage for the Gallup Live Broadcast for the first time, representing an upgrade from the virtual esports venue we launched last year. With this virtual stage, online viewers felt as if they were on site in an immersive live atmosphere. We also added creative interaction features to make this viewing experience even more fun and exciting. For example, viewers assessing the virtual scene were able to join live performers' fan camps, showing their support through their avatar captions and decorations, and vote for their favorite team Virtual viewers also have access to our virtual gravity tools which allow them to draw pictures and gravity design and simultaneously display them on the scene of the live stage for the on-site audience to enjoy. Encouragingly, the number of total online interactions and the popularity index of this event on our platform, broke the records of peer-read gallows. We believe features like this help to promote the integration of online and offline performances and better enable co-creation and interaction with users. Building on the success of this flagship event, we plan to bring these features to our broadcasters and users in more scenarios in the future. Recently, the interactive game category on our platform has been gaining more traction, as interactive games allow viewers to directly engage with broadcasters and influence game outcomes in real time, creating a highly interactive and engaging experience. In response to the trend, we have introduced several interactive games through our Huya MiniTools open platform. Enable broadcasters to select and apply those tools during their streaming session. Currently, our most popular interactive games are Battle of Laws and Crushes. Battle of Laws features streamers' fan relationships build wild user participation in competition through gifting and bullet checks. Wild Crushes offers real-time interaction between broadcasters and viewers from two camps. Although still at an early development stage, our interactive game category is gradually cultivating its core user audience. We will continue to release upgrades to our existing tools and welcome additional good quality interactive games to our platforms in an effort to bring more monetization opportunities to our broad pastures. We are also focusing on further building gamification elements and integrating interactive content into live streaming sections for more dynamic viewing and interaction effects, thereby increasing viewer engagement. As more game titles have received approval in China in recent months, we also plan to diversify our operational activities and deepen our cooperation with game companies to seize the opportunities brought by new game launches. For example, Through our gift draw feature, broadcasters and viewers can get free exclusive game tools and other free gifts provided by game studios for use in new games, such as Andromed Metro Slug and Honkai Star Rail. We are also organizing platform-based competitions for new games, inviting popular broadcasters to participate. leveraging our strong ability to monitor new games and our proven success in game promotion. We are confident we can identify and offer attractive new game content and enhance new games' popularity, thus further solidifying our leading position in game live streaming markets and increasing our presence in the game value chain. While we're still facing some external uncertainties in the near term, we remain positive about the overall market recovery process. Our efforts across content enrichment, product advancement, and exploration of commercial opportunities, as well as our constant improvements in operational efficiency, are setting the stage for our long-term development Also, as Tencent recently increased its holding of Korea's shares, we look forward to deeper collaboration with Tencent Group and enjoy the synergies we can create together. We will continue to seek growth opportunities as the business environment rebounds with an eye to creating sustainable value for our users, broadcasters, and all other stakeholders. This concludes Mr. Dong's remarks. Now, I will continue with some updates on our content enrichment and diversification initiatives. During the first quarter of 2023, we broadcasted around 55 third-party professional esports tournaments attracting a viewership of over 400 million. While we experienced a gradual uptick in the number of professional tournaments starting from the beginning of this year, the overall quantity of tournaments in the first quarter was lower than that of Q1 last year, primarily due to our stricter content procurement policies and sub-scheduling disruptions immediately following China's reopening. Our most popular events during the quarter included LPL Spring, KPL Spring, and CFPL, as well as our exclusive broadcast of LCK Spring and CSGO Tournament EPL Season 17, and IEM We also broadcasted around 15 self-organized esports tournaments and entertainment PGC shows in the first quarter, generating total viewership of approximately 77 million. Two standouts this quarter were Huya Choshen Cup for Peacekeeper Elite and Jueying Cup for crossfire mobile. Our partnership with CFM enabled our viewers to claim a variety of Huya custom game tools while watching Jueying Cup matches, showcasing our cross-promotional capabilities. Also, as we strive to enrich our content genre, we launched Huya Babylon Cup local tool capturing the attention of sports fans across our platform. As always, we will dramatically adjust our offering of self-produced tournaments and programs according to users' interest as we seek to complement the licensed professional content supplied on our platform. In addition, During our annual gala period in March, we hosted an e-sports event, Hu Yabung Fight, inviting popular streamers, celebrities, and etc. players to join competitions among the game titles, including League of Legends, Honor of Kings, and Identity V. Held in Macau, this large e-sports event not only engaged a wide audience, both online and on-site, it also helped promote e-sports culture exchange among youth groups in the Guangdong, Hong Kong, Macau, Greater Bay Area. Next, let me provide some color on our operational optimization efforts. In the first quarter, our Content Licensing Corps decreased significantly year-over-year and quarter-over-quarter, primarily due to the pricing term adjustments following the amended licensing agreement for LOL metrics in January, as well as our reduced procurement and production of licensed and self-organized content. We also continue to realize savings on broadcast child-related costs, and bandwidth usage through detailed ROI analysis and efficient use of technical resources. As a result, we achieved a nice rebound in our growth margin, nearly reaching the first quarter of 2022 level, despite lower total revenues this quarter. We also solidified our efficiency gain reducing our total operating expenses in the first quarter by 26% year over year and 7% compared with the previous quarter. Therefore, we narrowed our operating loss and achieved a positive net profit this quarter. I also would like to point out that while we expect overall tournament content costs to decline this year compared to 2022. Tournament content costs will still weigh more heavily in the second half of the year due to the seasonality of event schedules. This may create some ongoing fluctuations in our profit levels. Next, moving on to our Q1 financial details. Our total net revenues were RMB 1.95 billion for Q1, a decline from RMB 2.46 billion for the same period last year. Livestreaming revenues were RMB 1.86 billion for Q1, compared with RMB 2.16 billion for the same period last year. The decrease was primarily due to a decreased number of paying users on Huya Life, as the micro and regulatory environment continue to adversely affect paying users' sentiment. Advertising and other revenues were IMB 89 million for Q1, IMB 313 million for the same period last year. This was primarily due to a significant decrease in content sub-licensing revenues, as well as soft demand for advertising services resulting from the challenging micro environment. As we mentioned previously, following our amended licensing agreement for LOL Matches in January, we no longer own the sub-licensing rights for LPL metrics during the 2023 to 2025 period, while the sublicensing of those LPL metrics was the primary contributor to our content sublicensing revenues in 2022. Cost of revenues decreased by 21% year over year to RMB 1.69 billion for Q1, primarily due to decreased revenue sharing fees and content costs, as well as bandwidth costs. Revenue sharing fees and content costs decreased by 18% year-over-year to RMB 1.49 billion for Q1, primarily due to the decrease in revenue sharing fees associated with the decline in live streaming revenues and lower costs related to the esports content as well as content creators. Bandwidth costs decreased by 44% year-over-year to RMB 94 million for Q1. This was primarily due to improved bandwidth cost management and continued technology enhancement efforts. as well as less bandwidth usage as a result of strategic adjustments in our overseas business to remain focused on key markets. Gross profit was RMB $256 million for Q1, primarily due to lower revenues. Gross margin was 13.2% for Q1. Excluding share-based compensation expenses, non-GAAP gross profit was RMB 265 million and non-GAAP gross margin was 13.6% for Q1. Research and development expenses decreased by 22% year-over-year to RMB 152 million for Q1. primarily due to decreased personnel-related expenses and share-based compensation expenses. Sales and marketing expenses decreased by 37% year-over-year to RMB 91 million for Q1, primarily due to decreased marketing and promotion fees, as well as personnel-related expenses. General and administrative expenses decreased by 16% year over year to RMB $68 million for Q1, primarily due to decreased personnel related expenses and share-based compensation expenses. Other income was RMB $4 million for Q1. compared with RMB 28 million for the same period of 2022, primarily due to lower tax refunds and government subsidies. As a result, operating loss was RMB 51 million for Tier 1, compared with RMB 60 million for the same period of 2022, interest and short-term investment income were RMB 96 million for Q1, compared with RMB 59 million for the same period of 2022, primarily due to increased interest rates. Net income attributable to Huya Inc. was RMB 45 million for Q1, compared with a net loss attributable to Huya of RMB 3 million for the same period of 2022. Non-GAAP net income attributable to Huya Inc. with RMB 86 million for Q1 compared with RMB 47 million for the same period of 2022. Non-GAAP net income margin was 4.4% for Q1. Denoted net income per ADS was RMB 0.18 for Q1. Non-GAAP denoted net income per ADS was RMB 0.35 for Q1. As of March 31, 2023, the company had cash and cash equivalents short-term deposits, short-term investments, and long-term deposits of RMB 10.3 billion, compared with RMB 10.7 billion as of December 31, 2022. With that, I would now like to open the call to your questions.