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.