HUYA Inc.

Good day and good evening, and thank you for standing by. Welcome to HUYA's fourth quarter and fiscal year 2023 earnings webinar. I am Hanyu Liu from HUYA's Investor Relations. At this time, all participants are in lesson-only mode. Please be advised that today's webinar is being recorded. 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 Iowa website in a few hours. Participants of management on today's call will be Mr. Junhong Huang, Huya's Acting Co-CEO and Senior Vice President, and Ms. Ashley Wu, Acting Co-CEO and 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 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 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 on the applicable law. Please also know that WHOIA's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. HUYA's press release contains the reconciliation of the unaudited non-GAAP measures to the unaudited, most directly comparable GAAP measures. With that, I am pleased to turn the call over to our Acting Co-CEO and ASVP, Mr. Huang. Please go ahead.

Hello, everyone. Thank you for joining our earning conference. Today, I'd like to share an overview of our recent performance and business development and technology offerings and overseeing initiatives as well as our corporate social responsibility efforts. 2023 marked a year of transformation for Huya. We launched a strategic plan to transition our commercialization focus toward game-related services and expand our presence in the game industry. I'm pleased to report that we have made great strides in this area while also strengthening our core capabilities to maintain our leadership and competitiveness in the game live streaming industry. Against the backdrop of challenging macro and industry environment and this proactive business adjustment, we experienced revenue decline this year. However, we achieved a turnaround on the margin side, posting a non-GAAP net income of RMB $119 million for the full year as we continue to optimize cost and improve operational efficiency. We also kept our user community engaged through our extensive content and service offerings, with Huya Life's average mobile MAUS holding steady year over year at 84.1 million for full year 2023. Next, a brief update on our strategic transformation. Our main goal for 2023 was to build the business infrastructure required to support our new game-related service and to establish cooperation with related game studios. We have largely completed kit list work, including upgrading the game center module, developing and integrating the in-game item mode function, and optimizing account binding with related games. We have also begun cooperating with various major game titles to provide distribution and promotion service, as well as in-game virtual item sale service on our platform. Although revenues from game-related service was modest in 2023 as we were in preparatory phase, we saw encouraging sign of growth in the fourth quarter and expect that trend to strengthen in 2024. We are confident that game-related service will continue to scale as we add newly launched and existing titles and ramp up public participation from our broadcasters. Revenues from our advertising and other segments increased 41% quarter-over-quarter and 29% year-over-year in the fourth quarter, primarily driven by game-related service contribution. Our recent efforts in the promotion and distribution of an early-awaited new game, DreamStar, clearly demonstrate our game-related service capabilities as well as this business's vast potential. We conducted a comprehensive promotional campaign loaded with innovative features, resulting in industry-leading levels in terms of promotional performance and the number of reservations and downloads through our channel during the game's launch period. Specifically, we invited popular broadcasters on our platform to stream their gameplay and rewarded live stream viewers with visual Gym Star gift packs through our unique interactive gift drop feature. We also created a Gym Star pre-order and download area in our game center and provided broadcasters with commission-generating reservation links to place on their channels incentivizing their participation while boosting user pre-orders. Meanwhile, users who downloaded the game through our platform received inclusive in-game props and other gifts provided by both DreamStar and Huya. In addition, we held cross-platform entertainment competition, incentivized the creation of gameplay-delivered videos and organized activities for broadcasters to design inclusive game maps, all of which effectively expanded this new game's reach on our platform. As a live streaming platform primarily serving the game vertical, OUYA provides a more professional, more feature-rich game streaming experience than non-dedicated platforms. We are committed to further differentiating our super real game live streaming platform and continue to drive progress through tech innovation. For instance, we currently leveraging deep game data and our proprietary large language model chain on data from our platform streaming contents. and 270 million bullet chats to enhance the traditional live streaming viewing mode with real-time analysis and interaction based on game content and events. This immersive upgrade makes game live streaming content more professional and entertaining, boosting engagement across the board. For example, in our content, current Honor of Kings live streams Our AI tech can help streamer dynamically generate customized commentary based on real-time information, such as game battle status and weapon used. In addition, viewers can use our AI intelligent editing function to instantly capture and replay blockcasters' best moves, increasing users' sense of participation. Turning now to our overseas expansion, we view our overseas initiatives as strategically important, providing revenue diversification while supporting our overall growth as we capitalize on opportunities arising from the overseas activities of Chinese game companies. In December 2023, We acquire a 100% equity interest in a global mobile application service provider. In line with our strategic transformation, this acquisition is intended to enhance our game promotion and distribution capabilities in international markets. It will also create synergies with our overseas game live streaming platforms, Nemo TV. empowering better utilization of localized results and improving efficiency. Lastly, as a part of our corporate social responsibility efforts, we continue to expand our portfolio of content with positive social impact through our live streaming plus model, connecting online interactions and offline activities. In 2023, more than 4,600 broadcasters contributed a total of over 50,000 streaming hours of positive social impact content to our platform, covering areas such as cybersecurity education, minor protection, and rural revitalization to complement our game and entertainment programming. We leverage our innovative technology and brand awareness to increase this content's influence, enhancing our platform's healthy atmosphere. Going forward, Huya will remain committed to upholding its corporate social responsibility and contributing to the healthy development of the live streaming industry. Looking ahead to 2024, we face a rapidly changing market market conditions and that present both challenges and opportunities, we will continue to solidify our core live streaming business and actively promote the development of game-related service to expand our business and revenue streams. As we steadily implement our strategic transformation plan, we remain confident in our future business prospects. With that, I will now turn the call over to our Acting Co-CEO and VP of Finance, Ashley Wu, to share more details on our results. Ashley, please go ahead.

Thank you, Vincent, and hello, everyone. I'll provide some updates on our operating metrics and financials. Overall, we maintain a stable user base in the fourth quarter. We continue to engage users in rich game and esports content during the period, particularly some major esports tournaments, while upgrading interactive features to enhance the viewing experience. OER Live Mobile MAUs for the fourth quarter of 2023 was 85.5 million, compared with the same period last year. and slightly lower compared with the summer season's higher base. On the other hand, as we developed more innovative game-related services, more users started to pay for these new services in the fourth quarter, driving a slight sequential increase in Huya Life's paying users for the fourth quarter to 4.3 million, despite a decrease in live streaming products and services paying users. Turning to our professional content enrichment, on the licensed content front, we broadcasted over 70 third-party professional esports tournaments in the fourth quarter of 2023, with a total viewership of over 360 million. As we have become more selective In licensing tournaments, we will continue to improve the ROI and content utilization efficiency of these events by enhancing event experience and related operational activities. A variety of year-end events, including the LOL Worlds, the Honor of Kings International Championship, and Challenging Cups, the Crossfire CFS Grand Finals, and the PUBG Mobile Global Championship attracted raw user attention. The Valorant China Evolution Series also gained traction on our platform as Valorant's esports events continued to develop. Notably, our coverage of this year's LOL Worlds 2023 one of the most influential esports events in the world, demonstrated our vast content enhancement capabilities. We once again maintain our leading market share of this event's viewership, with several of its key viewing metrics on our platform, improving compared to the previous edition. Oya has broadcasted this event for six consecutive years, gradually increasing our users' awareness of the brand and cultivating a strong habit of watching it on Huya's platform among the professional esports audience. To provide best-in-class broadcast quality, this year, we continue to focus on upgrading users' viewing and interactive experiences, introducing enhanced features such as 120 FPS high frame rate video quality, an AI camera for taking live scene photos, and our game watching assistant. In addition, we boosted user attention and engagement through a combination of online and offline operational activities and our self-produced commentary programs. such as Huxiang S13. In terms of self-produced content, we broadcasted nearly 30 self-organized esports tournaments and entertainment PGC shows in the fourth quarter, with a total viewership of approximately 120 million. Among these events, League of Legends Huya platform Qualifier for Demo Sale Cup and Peacekeeper Elite MNC Challenge Match were quite popular. For our in-house developed IPs, we will focus on producing their feature content and expanding its reach through cross-platform and cross-category collaborations. In December, we hosted the first event in our Village Game Series, the Lianghe Village Game for Honor of Kings in Lianghe County, Yunnan Province. The Village Game Series represents our first foray into building a rural esports tournament brand. With county government support, this event attracted massive attention among local communities, bringing together people of all ages, and more than 300 teams to compete. Our event integrated esports with traditional cultural activities, successfully expanding the influence of esports content among local audience, while also promoting the local culture. Honor of Kings, named this Lianghe Village Games, is best authorized esports tournament in 2023, a powerful testament to our tournament and brand building capabilities. Let's move on to our Q4 financial details. First, I would like to point out that because our December acquisition of the mobile application service provider is a business combination under common control, we have consolidated the financials of the acquired business on a retrospective basis from the first quarter of 2022. Therefore, on this call and in the earnings release, we have included its results in our fourth quarter and full year 2023 figures and retrospectively adjusted the financials from the comparable period of 2022 to reflect the changes. Our total net revenues were RMB 1.53 billion for Q4 compared with RMB 2.12 billion for the same period last year. Livestreaming revenues were RMB 1.34 billion for Q4 compared with RMB 1.98 billion for the same period last year, primarily due to the soft micro and industry environment and our proactive business adjustments to support our strategic transformation and prudent operations. Advertising and other revenues were RMB 186 million for Q4, compared with RMB 144 million for the same period last year, primarily due to increased revenues from game advertising and distribution services. Cost of revenues decreased by 37% year-over-year to RMB 1.51 billion for Q4, primarily due to decreased revenue sharing fees and content costs, as well as bandwidth costs. Revenue sharing fees and content costs decreased by 39% year-over-year to RMB $1.32 billion for Q4, primarily due to the decrease in revenue sharing fees associated with the decline in live streaming revenues, as well as lower costs related to eSport content and content creators. I'd also like to point out that our content spending for Q4, while meaningfully lower year over year as a result of our cost optimization efforts, was still higher than in Q3. This was primarily due to the cost related to some large events particularly the content costs before LOL was 2023. Bandwidth costs decreased by 19% year-over-year to RMB 82 million for Q4. This was primarily due to improved bandwidth cost management, favorable pricing terms, and continued technology enhancement efforts. Cross-profit was RMB 15 million and gross margin was 1% for Q4. Excluding share-based compensation expenses, non-GAAP gross profit was RMB 15 million and non-GAAP gross margin was 1% for Q4. Research and development expenses decreased by 6% year-over-year to RMB 137 million for Q4, primarily due to decreased share-based compensation expenses. Sales and marketing expenses decreased by 11% year-over-year to RMB 113 million for Q4, primarily due to decreased personnel-related expenses. General and administrative expenses, increased by 18% year-over-year to RMB 100 million for Q4, primarily due to provisions and increased professional service fees, partially offset by decreased share-based compensation expenses. Other income was RMB 13 million for Q4, compared with RMB 44 million for the same period last year, primarily due to lower indirect tax refunds and government subsidies. As a result, operating loss was RMB $322 million for Q4, compared with RMB $581 million for the same period last year. Interest and short-term investments income was RMB $129 million for Q4, compared with RMB $102 million for the same period last year, primarily due to increased interest rates and improved management of deposit products. Net loss attributable to Huya Inc. was RMB and $75 million for Q4, compared with RMB $563 million for the same period last year. Excluding the share-based compensation expenses, impairment loss of goodwill and investments, and amortization of intangible assets from business company acquisitions, lack of income taxes, non-GAAP net loss attributable to Huya Inc. was RMB 190 million for Q4, compared with RMB 439 million for the same period last year. Non-GAAP net loss margin was 12.4% for Q4. Diluted net loss per ADS was RMB 1.14 for Q4. Non-GAAP-dinoted net loss per ADS was RMB 0.79 for Q4. As of December 31, 2023, the company had cash and cash equivalents, short-term deposits and long-term deposits of RMB 9.9 billion, compared with RMB 10.7 billion as of September 30, Moving on to our full year 2023 results. Total net revenues were approximately RMB 7 billion for 2023, compared with RMB 9.26 billion for the prior period. Livestreaming revenues were RMB 6.45 billion for 2023, compared with RMB 8.2 billion for the prior period. Advertising and other revenues were RMB 544 million for 2023, compared with RMB 1.07 billion for the prior year. Nevertheless, we achieved a meaningful year-over-year profitability improvement across the board Non-GAAP gross profit was RMB 831 million, and non-GAAP gross margin was 11.9% for 2023. Non-GAAP net income attributable to Hoya Inc. was RMB 119 million, and non-GAAP net margin was 1.7% for 2023. Non-GAAP-diluted net income per 8 years was RMB 0.48 for 2023. For additional details on our full-year 2023 financial results, I encourage listeners to refer to our earnings press release issued earlier today. Finally, let me provide an update on our capital allocation Under our up to US dollar 100 million share with purchase program that began in August 2023, we have repurchased 9.2 million ADS with a total aggregated consideration of US dollar 28.8 million as of the end of 2023. In addition, I'm pleased to announce the declaration of a special cash dividend totaling approximately US dollar 150 million for our shareholders. We will remain committed to enhancing shareholder returns and creating long-term shareholder value. With that, I would now like to open the call to your questions.