HUYA Inc.

and thank you for standing by. Welcome to HUYA's third quarter 2024 earnings webinar. I'm Han Yu Liu from the 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 soon. Participants of management on today's call will be Mr. Junhong Huang, our Acting Co-CEO and Senior Vice President, and Mr. Raymond Peng Lei, our Acting Co-CEO and CFO. 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 on the applicable law. Please also note that WHOIA's earnings press release and this conference call includes discussions on audited gap financial information as well as unaudited non-GAAP financial measures. Huya'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. We were pleased to make significant strides in developing our game-related services business during the third quarter. Game-related service advertising and other revenues reached a new record high, contributing 26.7% of our total net revenues. To drive this progress, we continue to enhance content and upgrade product features on our platform. to improve users' experience while exploring new partnerships and business opportunities to expand our user reach and unlock our growth potential. Moreover, despite the ongoing challenges in the macroeconomic and industry environment, we maintain a relatively stable year over year operating performance and achieve a non-GAAP net income of RMB 78 million. Now, let's take a detailed look at our recent operational and strategic achievements. First, our users. Engagement across our high-quality user base remained stable during the third quarter, with mobile MAUs improving slightly sequentially to 84 million. While we maintain our disciplined approach to marketing and promotion spending, we also enrich our content and service offerings as well as product features to reinforce our users' engagement. Furthermore, we continue to strengthen our cooperation with various content platforms joining hands with these partners to conduct cross-platform streaming and co-produce premium professional content. We also selectively distributed our comparing game live streaming and video content to product lines within Tencent's ecosystem and other content channels. Thanks to these initiatives, We estimate that Huya's content reached a total of over 140 million users in September, taking into account other platforms' users as well as our own mobile users. We believe our productive platform collaborations will continue to broaden our reach. among gamer users, empowering us to explore more commercialization opportunities around game-related services and live streaming. Moving on to game-related services, our game distribution in game item sales and game advertising business continue to grow robustly. Revenues from game-related services, advertising, and others reach RMB 410.2 million for the third quarter of 2024, up to by 209.3% year over year and 32.9% quarter over quarter. For game distribution, we worked closely with game studios on new game release, version updates, and related operational activities, and incentivized our broadcasters to participate in game distribution. These efforts effectively promoted our growth this summer, with total gross receipts generated through Huya's game distribution channel in the third quarter, rising to more than 20 times that of the year ago period. The quarter's top titles included Honor of Kings, Demigods, and Semi-Devil Mobile, DF Mobile, QQ Speed Mobile, and Peacekeeper Elite. We are confident of further developing our game distribution service as We expand our reach in the vast game market by offering distribution for wider range of titles, including both mobile and PC games, and collaborating with additional game studios. What's more, we plan to implement targeted initiatives for broadcasters to enable them to provide more tailored user services and drive users' interest in exploring and engaging with the games distributed via our platform. We have also strengthened our collaborations with major game titles in game item sales, broadening the scope of our coverage in this area. In particular, we were promoting inclusive or customized in-game items for our platform and broadcasters and holding sales events for initial release of new in-game items. For instance, during the third quarter, we held a crossfire workshop offering for your inclusive weapon skins, as well as an inclusive initial release of co-branded outfit skins featuring a well-known broadcaster on our platform. Sold on that broadcaster's channel, Both initiatives garnered great interest from our users. Notably, the total value of the co-branded outfit skins sold on the broadcaster's channel during this initial release activity exceeded RMB 50 million, validating the growth potential of our in-game item sales business. In terms of game advertising, we responded to the summer's increasing game marketing demand with comparing new game launch promotions and anniversary events for the existing games. In the third quarter, we collaborated with a number of game companies promoting popular game such as Arena Breakout, World of Warcraft, and Neruka Mobile. Going forward, we will continue to diversify our advertiser base and enhance our game promotion and marketing capabilities so we are streamer-created content and in-house produce events. Moving on to our professional content enrichment efforts on our platform, including licensed and in-house content. In the third quarter, We broadcasted over 90 licensed esports tournaments. The LPL, PPL, Valorant Champions, and Esports World Cup were among the most watched events during the quarter. In addition to the tournament of more proven esports game titles, which continued to attract user attention, Valorant tournaments have become increasingly popular since the game's launch in China last year. This year's Valorant Champions increased its viewership by approximately 160% compared to the previous edition, further boosting the popularity of the game's content on our platform. We also broadcasted the recently concluded LOL World 2024, one of the year's most important esports events. We prepare comprehensively for LOL World and we are pleased to see our hard work drive positive outcomes. We optimized our tournament broadcast audio and video technology for the event, providing a variety of HDR video quality options to suit users' various devices and network environments, which brought our users' industry-leading image quality effects and viewing experiences We also introduced a competition data analysis system for this event that instantly captured each data point and converted the data into a visual presentation, allowing viewers to see real-time changes in teams and players with win rates while they watch the competition. Also, in addition to our official streams, popular broadcasters and professional players on our platform created secondary live commentary for the event, providing our users with more diverse and entertaining tournament viewing experience unique to Huya. Based on our initial statistics, we maintained our leading market share of this event's viewership and further increase our market share year over year, significantly ahead of other live streaming platforms. In terms of in-house content, we broadcasted over 20 self-organized esports tournaments. and entertainment PGC shows in the third quarter. For example, we successfully hosted the HOK Streamer League in collaboration with two other major live streaming platforms to rave reviews across platforms. We also continue our Village Games series for community participation and hosted the Zhou San Village Games for Honor of Kings. Additionally, We collaborated with well-known TV program to produce Dreamer Rush Forward, a reality show featuring our game and entertainment broadcasters, which attracted strong user interest. For Competing to the End, our interactive game play variety show that integrates game promotion, and entertainment content. We covered more hot and new games in this quarter, such as HOK's new mod, Black Mii's Wukong Naruto Mobile. Given that our in-house content generally delivers good ROI performance. We are strengthening our investment in this area to create more influential and commercially valuable event IPs. As our range of in-house content expands and becomes more diverse, we will also focus on scheduling these programs to seamlessly integrate with our licensed events to better complement and enrich our professional content library. For example, following the conclusion of LOL Worlds 2024, we commence season two of our LOL Legend Cup, building on the success of its inaugural season in May. Finally, we continue to explore innovative features to engage users and enhance interaction while differentiating Huya's live streaming experiences. including product cooperation with leading game titles. For example, in the third quarter, Huya became the first platform in the industry to integrate Honor of Kings bullet chatting game play mode in live broadcast, adding both native features and platform-exclusive modifications developed by Huya using Honor of Kings tools. In this mode, viewers can activate special skill cards that impact the live game by sending bullet chats or visual gifs to the channel, creating unique gameplay situations that drive more interesting live streaming content. Given these features, promised we will continue to leverage Huya's expertise in creating engaging game live streaming content to bring entertaining, inclusive features to our streamers and users. Looking ahead, we will remain focused on fostering our in-house content initiatives We are especially excited about Season 2 of our self-produced Legend Cup and look forward to amplifying this series' success and influence. We will also deepen collaboration with content creators and industry partners to extend our content reach beyond the Huya platform and explore broader cooperation with more game developers and publishers to expand our presence in the game market. We are confident these efforts will unleash new commercialization opportunities, propelling our long-term business development. With that, I will now turn the call over to our Acting Co-CEO and CFO Raymond Lei, who has been with us for a few months. He will share more details on our results. Renmin, please go ahead.

Thank you, Vincent, and hello everyone. I'm delighted to be part of Huya's management team and to speak with you for the first time. I'll start with an overview of our financial performance. Our total net revenues were Renminbi 1.54 billion in the third quarter of 2024. The soft macro and industrial environment, which impacted users' willingness to pay for live streaming, continued to weigh on our live streaming revenues. Meanwhile, we proactively adjusted our business structure to support our strategic transformation and maintained prudent operations. Game-related services, advertising, and other businesses showed strong momentum and made a more meaningful contribution to our top line, increasing by 209.3% year-over-year and 32.9% quarter-over-quarter, primarily due to increased revenue from game distribution and advertising services and in-game item sales. We are pleased to see more users paying for our game-related services driving growth of 9.5% year-over-year in paying users to reach 4.6 million in the third quarter. Also, our continuous efforts to improve operational efficiency paid off, with total operating expenses decreasing by 20.9% year-over-year. I'd also like to review our recent progress in optimizing our content. We continue to refine our street procurement strategy for licensed content, striving for better commercial terms. As we disclosed in September, we entered into a second supplemental license agreement for a series of League of Legends matches that decreased the license fee, which we believe will help us further reduce our overall esports license costs this year and in 2025. Let's move on to more details of our Q3 financial results. Our total net revenues will remain be 1.54 billion for Q3, of which live streaming revenues will remain be 1.13 billion, and the game-related services, advertising, and other revenues will remain be 410 million, compared with total net revenue of RMB 1.66 billion for the same period last year. Cost of revenues decreased by 6% year-over-year to RMB 1.33 billion for Q3, primarily due to decreased revenue sharing fees and accounting costs, as well as benefits and salary custody fees Revenue sharing fees and content costs decreased by 5% year-over-year to RMB 1.17 billion for Q3, primarily due to decreased live streaming revenue sharing fees associated with the decline in live streaming revenues, as well as lower costs related to licensed esports content. Partially offset by increased game-related services, advertising, and other revenue sharing fees, Bandwidth and server custody fees decreased by 26% year-over-year to RMB 61 million for Q3, primarily due to continued technology and management enhancement efforts, as well as favorable pricing terms. Gross profit was RMB 204 million for Q3, compared with RMB 243 million for the same period last year. Gross margin was 13.2% for Q3, compared with 14.6% for the same period last year. The change was primarily attributable to increased revenue sharing fees and accounting costs as a percentage of total net revenues. which rose mainly because the decrease in live streaming revenues outpaced the decrease in content costs. Excluding share-based compensation expenses, non-GAAP gross profit was RMB 207 million, and the non-GAAP gross margin was 13.5% for Q3. Research and development expenses decreased by 12% year-over-year to RMB 126 million for Q3, primarily due to decreased personal related expenses and share based compensation expenses. Sales and marketing expenses decreased by 30% year-over-year to RMB 73 million for Q3, primarily due to decreased marketing and promotion fees as well as personal related expenses. General and administrative expenses decreased by 25% year-over-year to RMB 50 million for Q3, primarily due to decreased professional service fees and personal related expenses. Other income was RMB 13 million for Q3 compared with RMB 40 million for the same period last year, primarily due to realized damages received in the third quarter of 2023 from a favorable outcome in a broadcaster-related lawsuit and lower government subsidies. As a result, operating loss was stable at RMB 32 million for Q3 compared with the same period last year. Excluding share-based compensation expenses and the application of intangible assets from business acquisition, non-GAAP operating loss was人民비 13 million for Q3 compared with人民비 15 million for the same period last year. Long gap operating margin was negative 0.9% for Q3. Interest income was RMB 97 million for Q3, compared with RMB 128 million for the same period last year, which was primarily attributable to the special cash dividends paid in May and October 2024. Net income attributable to Huya Inc. was RMB 24 million for Q3 compared with RMB 11 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-government net profit attributable to Huya Inc. was RMB 78 million for Q3 compared with RMB 107 million for the same period last year. Non-GAAP net margin was 5.1% for Q3. Diluted net income per ADS was RMB 0.1 for Q3. Non-GAAP diluted net income per ADS was RMB 0.34 for Q3. As of September 30, 2024, the company had cash and cash equivalents, short-term deposits, short-term investments, and long-term deposits of RMB 8.1 billion, compared with RMB 8.2 billion as of June 30, 2024. Finally, an update on our shareholder returns. As of the end of September 2024, We had repurchased US dollar 61.1 million of Huya shares through our share repurchase program. The two special cash dividends we paid this year also returned an aggregate value of approximately US dollar 400 million to our shareholders. We remain committed to consolidating our financial and operating performance and creating more value for shareholders. With that, I'd like to open the call to your questions.