HUYA Inc.

and good evening, and thank you for standing by. Welcome to HUYA's second quarter 2024 earnings webinar. I am Han Yu Liu from HUYA's Investor Relations. At this time, all participants are in listen-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 IR website in a few hours. Participants of the management on today's call will be Mr. Junhong Huang, Acting Co-CEO and Senior Vice President of Huya, and Ms. Ashley Xinwu, 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 on 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 on the applicable law. Please also note that WHOYA's earnings press release and this conference call include discussion 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. With that, I'm pleased to turn the call over to our co-CEO and SVP, Mr. Huang. Please go ahead.

Okay. Hello, everyone. Thank you for joining our earning conference today against the backdrop of persistent uncertainty in the macro environment and industry landscape. We were pleased to resume quarter-over-quarter growth in total net revenues in the second quarter, up 2.5% from the previous quarter to reach RMB 1.54 billion, driven by the rapid revenue growth of our game-related services, advertising, and other businesses. Notably, game-related services, advertising, and other revenues reached a milestone contributing 20% of our total net revenues for the first time. We also sustained our profitability with non-GAAP net income of approximately RMB 97 million. Solid strategic execution across business and commercialization transformation, content and platform ecology upgrades, and technology and product advancement supported this quarter's positive outcomes. Now let's take a detailed look at our recent operational and strategic progress. First, some user metrics. For the second quarter of 2024, Huya Life's average mobile MAUS reached 82.5 million, 83.5 billion. up from 82.6 million for the previous quarter and 82.9 million for the same period last year. The growth was mainly driven by the success of several self-organized esports events. Various recent new game launches and our continuous user experience improvement also contributed to enhanced user engagement. As we mentioned on our last call, we are strengthening our cooperation with various platforms and products to enhance our platform ecology and reach a wider range of users. This includes professionally generated content co-production, broadcaster across platform streaming, and joint promotion initiatives. As a barrier-breaking industry pioneer, We believe we can further increase the Huya platform's influence within this more open content ecosystem. We have already started to selectively bring our live streaming and video content to other content platforms, as well as various product lines within the Tencent ecosystem. In June, Huya content reached a total of approximately 120 million mobile users. We are confident this broadened reach will facilitate the creation of more commercialization opportunities. Moving on to our strategic transformation, our game-related services continue to expand rapidly as we collaborated with more game titles, leverage our live streaming content and PGC programs, and employed innovative operational approaches to drive business development. In the second quarter, revenues from our game-related services, advertising, and other segments increased by 152.7% year-over-year and 26.6% quarter-over-quarter to RMB 308.5 million. In terms of game distribution, We continue to expand Evergreen Games coverage and drive improvement in their user return rates. We also participated in the promotion and distribution of newly launched DNF Mobile in the second quarter. Specifically, we set up a special pre-download area for this game in the Game Center section of OUYA Live App, promoted the game with space specially designed programs and inclusive props and gifts, and recruited broadcasters for the game's live streaming, all of which helped to increase the game's exposure and popularity on our platform. DNF Mobile not only ranked top among this year's new games in live streaming viewship indicators, but also achieved better than expected result in game distribution. In particular, early data shows that that in-game spend per user of Huya distribution channel user for this game was significantly higher than that of broader game channels, highlighting our platforms deeply engaged base of high-value gamer users. We also commenced in-game item sales for League of Legends, LOL, Wild Rift, and Valorant in the second quarter, innovatively combining game prop sales with corresponding tournaments to fully leverage these games' rich esports content. For example, we sold LOL champion skin through our LoL Legend Cup livestreaming channel, which generated great purchase interest. In terms of game advertising, in addition to gearing up for the promotion of this summer's upcoming games, we recently produced Yi Jing Dao Di, or Competing to the End, an interactive gameplay variety show that integrates game promotion and entertainment content under a different game theme in each episode. The program successfully engages users on our platform and proves effective in driving active players to corresponding games. It is worth mentioning that our game-related services have also opened up new income resources for our content creators, gradually improving their income levels. In the first half of this year, several thousand of our broadcasters received revenue sharing and commissions from game distribution and prop sales. As esports content represent of one of our core offerings we continuously refine we are self-organized esports events our legend cup held in the second quarter is a perfect example of our progress in upgrading tournaments products and operational strategies legend cup is our premium self-organized tournament in cooperation with league operation game this event brought together outstanding retired and active professional players and introduce bold innovations in the competition format and schedule. We live stream the entire event beginning with player selection and team formation and distributed highlight videos across multiple platforms. This enhancement helped attract widespread interest from League of Legends gamers and esports viewers, both within and outside Huya's platform. We also introduced a number of special features for the Legend Cup on our Huya Live app. For example, we set up designated event discussion area to aggregate event hot topics. player news, shot videos, and official tournament information. In addition, a new rating card function allowed viewers to comment on multiple aspects of players' performance, showcasing players' diverse characteristics and increasing users' interaction and enjoyment. In terms of event presentation, we created a voice capture live broadcast room for tournament. Powered by cutting-edge automatic speech recognition technology and an eSport professional vocabulary library, this feature instantly converts aural communication between players into text, immersing the audience in the player's game experience. Furthermore, our Legend Cup was seamlessly integrated into LOL's professional league schedules to complement and enrich the LOL esports content ecosystem. Legend Cup also provided opportunities for retired professional players to return to the top arena and quickly attract attention. While its entertaining elements drew a diverse crowd of fresh viewers, expanding the esports on the audience. We were pleased to see this event's viewship shed a new record for Huya's in-house produced content. Its popularity index on our platform was also comparable to that of top-tier licensed professional events. More importantly, through events like this one, we hope to enhance the influence and monetization of esports event IPs and promote the esports industry's sustainable development. Our successful sale of League of Legends Champion Skin at the Legend Cup demonstrated Huya's prowess in esports event monetization. Legend caps high popularity across platforms and sold out offline finals also underscore our self-organized events commercial value. Inspired by this success, we will continue to develop self-produced content and create more influential and commercially valuable event IPs. In summary, we have made solid progress despite some external challenges. We will continue to consolidate our foundation and actively develop our vision as we explore the industry's long-term possibilities. While maintaining our core competitiveness in game live streaming, we will drive game-related services development with content and platform ecology upgrades, technology advancement, and product innovation, expanding Huya's presence in the game industry value chain. With that, I will 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 start with an update on our professional content enrichment. In terms of licensed content, we broadcasted over 80 licensed professional esports tournaments in the second quarter of 2024. The LOL Mid-Season Invitational attracted great attention, and the LPL, KPL, and CFPL professional leagues remained among our most popular events. The World Ranked Champions Tournament and ESL Pro League Season 19 for Counter-Strike 2 were also welcomed by our users. In addition to covering extensive leading licensed esports events in China, we are expanding the range of international esports content available on our platform. For instance, we are broadcasting the inaugural eSports World Cup in Saudi Arabia starting in July, further enriching our high-quality eSports content library. On the in-house content front, we broadcasted over 20 self-organized eSports tournaments and entertainment PGC shows during the quarter. In addition to the LOL Legend Cup, and the Yi Jing Dao Di program that we mentioned earlier. We also co-hosted the first Thunder Honor Cup for Honor of Kings with another game live streaming platform in the second quarter. This event brought together professional teams from KPL to participate, capture massive viewer attention. and demonstrated Huya's increased cooperation with other game players, with other industry players in professional content co-creation. For esports events targeting community participation, we successfully hosted the Nanning Village Game for Honor of Kings and the Shandong Village Game for Peacekeeper Elite in the second quarter. By combining these esports events with local cultural elements, such as traditional costumes and food themes, we brought more immersive cultural experiences to our broader audience while also promoting esports popularity. Furthermore, we held our annual gala event, Huya Boon Night, in April to recognize and reward our broadcasters The year's event featured on-stage performances by renowned singers and our popular streamers, as well as an all-star esports competition. We also introduced upgraded interactive features for this event to engage both online and offline audience. The number of viewers for this event on our platform once again set a new Turning to our financial performance, despite the decline in live streaming revenues, rapid growth in game-related services, advertising, and other business revenues drove a quarter-over-quarter increase in our total revenues for the second quarter. This marks our first quarter of sequential revenue growth. since the fourth quarter of 2022. Also, with more users paying for in-game items and other services as the game-related services business expanded, Huya Live paying users continued to grow in the second quarter, up quarter over quarter to 4.5 million. Our second quarter gross profit was affected by lower live streaming revenues and higher content spending. However, with the increased contribution from our higher margin game-related services business to total revenues, as well as our continued operational efficiency improvements, we further enhance our operating results and achieve a close to break-even non-GAAP operating margin. Specifically, we effectively drove savings in sales and marketing expenses and labor costs, reducing our total operating expenses by 26.3% year-over-year. Let's move on to our Q2 financial details. Our total net revenues were RMB $1.54 billion for Q2, compared with RMB 1.84 billion for the same period last year. Livestreaming revenues were IMB 1.23 billion for Q2, compared with IMB 1.72 billion for the same period last year, primarily due to the continuous of microeconomic and industry environment, as well as our proactive business adjustments. to support our strategic transformation and prudent operations. Game-related services, advertising, and other revenues were RMB $309 million for Q2, compared with RMB $122 million for the same period last year, primarily due to increased revenues from game distribution and advertising services. and in-game item sales. Cost of revenues decreased by 14% year-over-year to RMB $1.33 billion for Q2, primarily due to decreased revenue sharing fees and content costs, as well as bandwidth costs. Revenue sharing fees and content costs decreased by 13% year-over-year to RMB $1.17 billion for Q2, primarily due to decreased live streaming revenue sharing fees associated with the decline in live streaming revenues, partially offset by increased game-related services, advertising, and other revenue sharing fees, as well as content costs for in-house produced content. decreased by 40% year-over-year to RMB 61 million for Q2. This was primarily due to improved bandwidth cost management, favorable pricing terms, and continued technology enhancement efforts. Gross profit was RMB 215 million and gross margin was 13.9% for Q2. Excluding share-based compensation expenses, non-GAAP gross profit was RMB 290 million and non-GAAP gross margin was 14.2% for Q2. Research and development expenses decreased by 11% year-over-year to RMB 129 million for Q2, primarily due to decreased personnel-related expenses, and share-based compensation expenses. Sales and marketing expenses decreased by 48% year-over-year to RMB 62 million for Q2, primarily due to decreased marketing and promotion fees, as well as personnel-related expenses. General and administrative expenses decreased by 21% year-over-year to RMB 64 million for Q2, primarily due to decreased professional service fees, personnel-related expenses, and share-based compensation expenses. Other income was RMB 13 million for Q2, compared with RMB 24 million for the same period last year. primarily due to lower government subsidies. As a result, operating loss was RMB 26 million for Q2, compared with RMB 33 million for the same period last year. Excluding share-based compensation expenses and amortization of intangible assets from business acquisitions, non-GAAP operating loss was RMB and non-GAAP operating margin was negative 0.2% for Q2, close to breakeven. Interest income was RMB $103 million for Q2, compared with RMB $125 million for the same period last year. Net income attributable to Huya Inc. was RMB 30 million for Q2, compared with RMB 20 million for the same period last year. Excluding share-based compensation expenses, impairment loss of investments, and amortization of intangible assets from business acquisitions, net-of-income taxes, non-GAAP net income attributable to Huya Inc. was RMB 97 million for Q2, compared with RMB 117 million for the same period last year. Non-GAAP net margin was 6.3% for Q2. Diluted net income per ADS was RMB 0.13 for Q2. Non-GAAP diluted net income per ADS was RMB 0.42 for Q2. As of June 30, 2024, the company had cash and cash equivalents, short-term deposits, short-term investments, and long-term deposits of RMB 8.2 billion, compared with RMB 9.4 billion as of March 31, 2024. Finally, let me provide an update on our shareholder returns. Upon review of our financials, business plan, capital requirements, and cash position, we are pleased to declare a special cash dividend of US$1.08 per ordinary shares or per ADS, totaling approximately US$250 million for our shareholders. Furthermore, Under our up to 100 million US dollars share repurchase program that began in August 2023, we have repurchased 17.1 million Huya shares with a total aggregate consideration of 56.7 million US dollars as of the end of June 2024. Huya's board of directors has also authorized the renewal and continued usage of the unutilized quota under the existing share repurchase program of US$43.3 million until March 31, 2025. We believe that Hoya's solid balance sheet and improving financial fundamentals will continue to support our ability to deliver shareholder returns going forward. With that, I'd like to open the call to your questions.

Thank you, Ashley. And hello, everyone. If you are dialing in by phone, please press 5 to ask a question, then press 6 to unmute yourself. If you're accessing the call from Tencent Meeting or both meeting applications, please click the raise hand button at the bottom left. 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. Today's first question comes from Thomas Chong from Jefferies. Thomas, your line is open. Please go ahead.

So I'll transfer myself. Thanks management for taking my question. My question is our current user strategies. As we saw this quarter year over year and sequential growth of mobile MAU and also sequential growth of paying user. Thanks.

Thank you for the question, I will answer it. First of all, we have 83.5 million users in the second quarter of this year's Huya live broadcast. This is mainly due to the high performance of our multi-layered autonomous e-sports competition this quarter, as well as the increase in the number of new users and the continuous user experience, which also helps to strengthen the activity of the users. Thank you for your question. In the second quarter of this year, Huya's mobile MAU was 83.5 million.

mainly due to the excellent performance of many self-made esports events this quarter. In addition, the launch of new games and the continuous improvement of user experience are also conducive to enhancing user activity. Therefore, while we continue to adopt a cautious channel promotion strategy, the number of users has increased compared with Q1 and with the same period last year.

In terms of user strategy, we plan to continue to attract and consolidate users through high-quality broadcast content and professional content, including our Golden Tower-type e-sports competition system, i.e. the complete copyright e-sports competition, which continuously improves its influence, and the competition in which the public participates. And we will also use the platform's games and the community of Scythe to carry out interaction with game users to improve the user flow of Huya platform and corresponding game projects. In terms of user strategy, we plan to continue to attract and consolidate users through high quality streamer content and professional content.

including our pyramid-shaped esports event system that is a complete copyright esports event with self-organized events and increasing influence, as well as mass participation events. In addition, We will carry the interaction of game users through the games and events communities on our platform to improve the user retention of Huya and corresponding other game projects. Based on the live broadcast and game data that we have combined with AI capabilities, we can better promote the output of high quality content and the launch of interactive live broadcast gameplay so as to improve our user participation as a whole.

On this basis, we also pay great attention to the construction and upgrade of the platform ecosystem. In the overall more open industry environment, Huya is the pioneer in breaking down the barriers of the industry. We are strengthening cooperation with multiple platforms and products, including professional content co-creation, live broadcasting across platforms, and commercialization. from which to reach more general users, and further expand the influence of Huya platform. Currently, we have started to select the content of Huya live broadcast and video to send to other live broadcast and short video platforms, as well as multiple product lines in Tencent ecosystem. On this basis, we focus on construction and upgrading of the platform ecology.

In an overall more open industry environment, Huya act as a pioneer in breaking industry barriers, and we are strengthening cooperation with multiple platforms and products, including professional content co-creation, cross-platform live broadcasts, and commercialization initiatives, so as to reach a wider range of users and further expand the influence of Huya platform. Right now, we have begun to selectively deliver Huya's live broadcast and video content to other live broadcast and short video platforms, as well as multiple product lines in the Tencent ecosystem. In June this year, the total mobile MAU reached by Huya content ecosystem reached about 120 million, and this volume continues to grow.

Therefore, the target of our service will not only be the users on Huya live broadcast, but also the users of more platforms on the whole network. We can also participate in a larger market. At the same time, we also believe that the upgrade of content and platforms can bring more commercialization possibilities, especially in the process of Huya transforming from a pure game live broadcast platform model to providing more game-related services.

Therefore, we do not only serve the users on Huya, but also users on more platforms across the entire environment and industry. We can also participate in a larger market. At the same time, we believe that upgrade of content and platform can bring more commercial opportunities, especially in the process of Huya's transformation from a pure game live broadcast platform to providing more game-related services. And the distribution of game content on multiple platforms and the broadcast content can help to drive distribution and promotion of the games and enhance the influence of broadcasters and bring more opportunities for revenue to grow in game distribution, advertising, and prop sales. Thank you.

And our next question comes from Maggie Yeh from CLSA. Maggie, please go ahead.

Good evening, Director Guan. Thank you for this opportunity. We have issued $2.5 billion in shares and extended the stock return plan. There are close to 8.2 billion yuan in cash and short-term investments on the account by the end of June. I would like to ask Director Guan about the strategy of using cash. Good evening, management. Thanks for the opportunity to ask question. We declared $250 million US dollar special cash dividend this time and also renewed the share rate purchase program. And meanwhile, we still have cash deposits and short-term investments of RMB 8.2 billion as of end of June. Please, could you share with us the overall strategy of capital allocation and the use of cash going forward? Thank you.

Comparing the amount of funds, the change in March was mainly due to the allocation of $1.5 billion in U.S. stocks, stock repurchases, and other payments. After the announcement of $2.5 billion in U.S. special cash stocks and payments, we expect that the company will still have nearly $9 billion in cash and deposits, and there will be no borrowings.

As of the end of June this year, Huya held cash and cash equivalents and deposit totaling approximately RMB 8.2 billion, equivalent to US dollars 1.1 billion. of which more than half were still overseas. The change in this amount of funds compared to the end of March was mainly due to the distribution of US$150 million in dividends, share repurchase expenses, and other payments. After we announced and paid the new special cash dividend of US$250 million, This time, it is estimated that the company will continue to have cash deposits nearly US$900 million with no debt. Regarding the use of cash, we currently have sufficient cash for the company's daily operation and future development. While consolidating the financial fundamentals, we are also expecting operating cash flow to improve. The company will continue to set aside a portion of funds for potential business development. and as a reserve fund in the event of uncertainty in the external environment. In addition, we remain open to investment projects related to the industry chain to seize related development opportunities. So we will also set aside a portion of fund accordingly.

At the same time, we will continue to pay attention to shareholder returns, especially cash returns.

At the same time, we will continue to attach importance to shareholder returns, especially cash returns to shareholders. In terms of dividends, in addition to the special dividend of US dollars 400 million announced this year, the company's management also intends to continue to share the company's profits and surpluses with our shareholders who support us in the future. Of course, the specific dividend policy, including the amount of the dividend and the timing of payout, is subject to further review and approval by the company's board of directors. In terms of repurchase, our repurchase plan has been extended to the end of March 2025. And there is currently a repurchase quarter of approximately 43 million US dollars. The company will continue to consider a variety of factors, including market conditions and stock liquidity to formulate an implementation strategy for our repurchase. Okay, thank you.

And our next question comes from Rachel Sun from HSBC. Hey, Richie, please go ahead.

Thank you, management, for taking my questions. I would like to ask about the games-related services business. Can management discuss the latest progress and the expectation in the third quarter for this business. Thank you.

Okay, thank you for Rishi's question. Let me answer this question. In the second quarter, the revenue of our game related services, ads, and other businesses increased by 152.7%. In return, it increased by 26.6%. It reached about 3.1 billion yuan. For the first time, it reached a milestone of 20% of total revenue. In the second quarter, revenue from our game-related services, advertising and other businesses

increased by 152.7 year-over-year or 26.6% quarter-over-quarter, reaching approximately 310 million RMB and also reached the milestone of accounting for 20% of the total revenue for the first time. The rapid development of this part of our business is closely related to our cooperation with more game titles, better utilization of live content and PGC programs, and adoption of innovative operating methods to promote business development.

In terms of game distribution, we will continue to add long-term game coverage. to promote the return of users to these games. In the recent new games, we mainly participated in the promotion and distribution of D&F mobile games. D&F mobile games are not only ranked first among the indicators of live viewing of the new game this year, but we also achieved more than expected in terms of distribution. In particular, according to the current data, the consumer level of the player in the Huya channel is significantly higher than that of the entire game platform, which reflects the potential of this very high business of our platform game users. We have achieved initial results in game distribution, and we are also willing to continue to build a special distribution model based on game content, to address users more accurately through the streamer group, and pay attention to the optimization of product design, in order to increase the transfer rate of game download and registration.

Looking further into this question, in terms of game distribution, we continue to add coverage of evergreen games to promote the return of users of these games. Amongst recent new games, in second quarter, we mainly involved in promoting and distributing the DNF mobile game. The DNF mobile game not only ranks among the top in this year's new game live broadcast viewing indicator numbers on Huya platform, but we also have achieved better than expected results in terms of distribution. In particular, according to current data available the in-game spend per user of Huya distribution channel users is significantly higher than the overall market, reflecting the high business potential of Huya platform scan users on the scan. Our current initial result in game distribution are also due to our continuous efforts to create a unique distribution model based on game content. More accurately, we are able to reach users through our broadcaster groups and focus on product design optimization to increase the conversion rate of game downloads and registrations of users.

In the second quarter, we also started selling props for the games such as League of Legends and League of Legends Online. For these e-sports games, we innovatively combined the sale of game props and the corresponding tournaments. For example, in the Legend Cup live broadcast, the sales of the champion skin of League of Legends have received a hot response. In terms of game advertising, we are also exploring new directions. For example, the recently launched game called The Endless Endless, which is an interactive variety show, is innovatively combined with game promotion and entertainment content. In the second quarter, we also started selling items for games such as League of Legends,

League of Legends Mobile and Valorant. For these eSport games, we innovatively integrate the sales of props with corresponding events. For example, the League of Legends Champion Skin sales in Legend Cup Live Broadcast Room received very enthusiastic response and was super popular. In terms of game advertising, we are also exploring new directions. For example, we recently launched Competing to the End, or Yijing Daodi, interactive variety show, which innovatively combines game promotion and entertainment content. Each episode corresponds to a different game theme, and it has currently cooperated with Mingchao Wuthering Reefs, DNF Mobile, Aggie Party, and other games. While this program is popular among users, it can also effectively help bringing active players to the corresponding games for us.

我们相信这也将有助于虎牙巩固和吸引主播,并增强公司内容成本和收入的相关性。 It is also worth mentioning that our game-related services have also brought new sources of income for Huya's broadcasters, helping them to increase their income levels.

In the first half of this year, thousands of broadcasters have received income from game distribution and prop sale services. We believe that this will also help Huya to consolidate and attract broadcasters and enhance the company's content cost-to-revenue correlation.

For the games that have already been distributed and sold, we will cooperate based on the popularity of the game and update points, and promote relevant businesses through live content and programs. There will also be a lot of new oil on the line this summer. We will also further expand the range of cooperative game products and manufacturers. Overall, we are confident that game-related service businesses will continue to expand in the future. We currently expect that Q3 game-related services, advertising, and other levels of income will continue to gain double-digit growth compared to Q2.

Summer is generally a peak season for our industry, and we are also working hard to seize corresponding opportunities. For games that have covered distributions and prop sales will cooperate according to the popularity of the games and the update schedule of the games. and promote related business through live broadcast content and other programs. There are also many new games coming online this summer, and we will further expand the scope of cooperation in different game categories and with different cooperating partners. Overall, we are confident that the game-related services business will continue to expand in the future. We currently expect revenue from game related services, advertising and other segments in Q3 to continue to achieve a double digit growth compared to the second quarter.

Thank you. Now we will take our last question today from Yiwen Zhang from China Renaissance. Yiwen, your line is open.

So thanks for taking my question. My question is regarding our margin trend. So we see some fluctuation in gold's margin in Q2, but the question is why... So we want to understand what are the reasons behind, how should we look about future trend? Thank you.

Hello, Yiwen. Let me answer this question. This year, the non-GAAP interest rate of Q2 is 14.2%. 14.2% compared to Q1, which is 0.7%. Compared to the same period last year, which is 1.8%. bingqie yi shou dao hongguan he hangye huanjing de yingxiang, yonghu da shang de xiaofei yi yuan huifu renran biqiao man, diwa jiidu zi zhi neirong tou ru jiao duo ye hui yu yi ding de yingxiang, tebie shi women zai ben jiidu da zhao le chuan qi bei, lei ting rong yao bei, ze xie gui mo he yingxiang li dou biqiao da de jingping zi ban sai shi.

The non-GAAP gross profit margin in the second quarter of this year was 14.2%, representing a 0.7% lower than the first quarter and 1.8% lower than the same period last year. The slight decline in gross margin in this quarter was mainly due to the decline in live broadcast revenue and the increase in the content production cost. Although the trend of live broadcast revenue has stabilized and the quarter-over-quarter decline has further narrowed, its scale is still significantly lower than the same period last year. This is mainly because our adjustment of the live broadcast business started in the second half of last year. The year-on-year base of live broadcast revenue in the first half of the year was still high. And due to the influence of the micro and industry environment, the recovery of users' consumption willingness to reword is still low. The large investment in self-made content in the second quarter has also caused an impact, especially we had Legend Cup and Thunder Honor Cup. and other high-quality self-made events with large scale and influence in this quarter.

这个季度主播的直播分成成本比例基本保持稳定。 主播签约成本的金额也在持续优化当中。 游戏相关服务、广告和其他收入占总收入的比例从去年Q2的6.5%和今年Q1的16.2%上升到今年Q2的20%。 As we are in the early stages of business development, we have also launched some platform incentives that will cause some fluctuations in the net profit. However, the net profit of this part of the business is still significantly higher than that of the live broadcast business, so it will have an active impact on the overall net profit. In this quarter, it is not enough to compensate for the impact of other factors.

The live broadcast revenue share ratio remained basically stable this quarter, and the amount of broadcasters' contract costs is also being optimized. The proportion of gaming-related services, advertising, and other revenue in total revenue increased from 6.2% in second quarter last year to 16.2% in the first quarter this year to 20% in the second quarter of this year. As it is still the early stage of our business development, we have introduced some platform specific incentives. These will cause some fluctuations in our gross margin. But the gross margin of this part of business is still significantly higher than that of live broadcast business. So it has a positive impact on our overall gross margin performance. but it is still not big enough to offset the impact of other factors of this quarter.

Therefore, the sales cost in the second quarter has been further reduced, and the overall operating cost has also been reduced by 26.3%, and the return has been reduced by 6.4%. So from the operating profit side, our overall operating performance has been improved compared to before. The operating losses compared to the return have been reduced, and the operating profit of non-GAAP is close to the operating loss balance.

I'd also like to point out that as a content-driven company, the content investment plays an important role in attracting and retaining users. While increasing investment in self-made content and achieving good results, we have also dynamically adjusted the expenditure of sales expenses. Therefore, sales expenses in the second quarter have been further saved. driving the overall operating expenses to decrease by 26.3% year-over-year and 6.4% quarter-over-quarter. So from the operating profit perspective, our overall operating performance has improved compared to before, and the operating loss has narrowed both year-over-year and quarter-over-quarter, and the non-GAAP operating profit is closing to a break-even point.

我们相信后续在直播收入趋势更加稳定的情况下 对于整体毛利的负面影响会逐步减少 随着整体收入结构的改善 预计Q4大型赛事的季节性高成本 带来的毛利率波动将会明显降低 那从长远来看 基于更加平衡的收入结构 以及主播和内容成本的优化 我们认为毛利率

We believe that as the live broadcast revenue becomes stabilized and its negative impact on overall gross profit margin will gradually decrease. With the improvement of overall revenue structure, it is suspected that the gross profit margin fluctuation caused by seasonal high cost of large scale events in Q4 will be significantly reduced. In the long run, based on a more balanced revenue structure and the optimization of broadcaster and content costs, we believe that there is still room for further improvement on our gross profit margin. As for this year, we maintain the expectation that the full-year gross profit margin will increase compared to 2023, and at the same time, full-year profit level will also increase. Thank you.

Thank you once again for joining us today. If you have further questions, please feel free to contact Huya's Investor Relations through the contact information provided on our website, OPS&A Financial Communications. This concludes today's call, and we look forward to speaking to you again next quarter. Thank you.