HUYA Inc.

Good day and good evening, and thank you for standing by. Welcome to HUYA's fourth quarter and fiscal year 2024 earnings webinar. I'm Han Yuliu from the HUYA 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 IR website soon. Participants of management on today's call will be Mr. Junhong Huang, our Acting Co-CEO and the Senior Vice President, and Mr. Raymond Peng Lei, our Acting Co-CEO and CFO, Management will begin with the 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 WHOIA's earnings press release and this conference call include discussion of unaudited gap financial information as well as unaudited non-gap financial measures. WHOIS press release contains a reconciliation of the unaudited non-gap measures to the unaudited, most directly comparable gap 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. Despite 2024's external challenges, we delivered a solid year by seeing opportunities arising from our strategic transformation and new game launches, notably Revenues from the game-related services, advertising, and other segments increased by 145.4% year-over-year to RMB 1.33 billion for the full year. This segment accounted for 21.9% of our total net revenues for the year, a substantial rise from 7.8% in the previous year. We recorded total net revenues of RMB 6.08 billion for the full year with improving profitability. Non-GAAP net income reached RMB 269 million. up by 125.6% year-over-year, with net cash provided by operating activities turning positive at RMB 94 million. These advancements are thanks largely to our strategic commercialization model update, as well as our enhanced live streaming content ecology and technology and product upgrades Now, let me share the detail of our recent business progress. First, we made encouraging strides in our business transformation. For the fourth quarter, revenues from game-related services, advertising, and others increased by 99.4% year-over-year through RMB 372 million. Despite a sequential revenue decline from the third quarter peak due to the game industry's net seasonality, these sectors overall performance remain solid. Regarding game distribution, we continue to increase operational excellence for both new and existing titles and are pleased to see the Huya platform emerging as one of the primary distribution channels for several games. Following the recent launch of Data Force, we actively encourage our broadcasters' participation in the title's live streaming and game promotion. This led to rapid growth in gross receipts for the game generated through the VR distribution channel while also boosting its live streaming content's performance. In Edison, we plan to collaborate with more game developers and publishers on distribution and joint operations, and we conducted some meaningful trials with third-party game studios in the fourth quarter. We look forward to these initiatives contributing to the future development of our game distribution business. For in-game item sales, we deepen our focus on diversifying in-game item categories and improving traffic efficiency on live channels. We also upgraded the More section on our app, integrating popular game skins, tools, and user incentive activities. In January, we launched our first League of Legends themed game item shop, accompanied by a special Spring Festival promotion featuring Huya exclusive benefits. Excitingly, our efforts drove a record high in our monthly total in-game item sales GMV for January. On the advertising front, it's worth noting that our in-house LOL Legend Cup Season 2 doubled its sponsorship revenue compared to its inaugural event Leveraging Legend cups increased influence and IP value. The event attracted a wider range of well-known sponsors from the beverage, automotive, and local service sectors. Furthermore, we began leveraging our international business presence to explore diverse revenue streams in overseas market in 2024 by providing game distribution, in-game item sales, and game marketing services. These initiatives have already achieved promoting early results. Moving on live streaming content ecology, we continue to strengthen our content ecologist through collaborations with various content platforms during the quarter. This has brought our broadcasters quality content and services to broader game audience, expanding our market presence and setting the stage for the future commercialization initiatives. In December 2024, we asked content reach a record high number of viewers, which we estimated to be more than double the number of our mobile active users. On our professional content enrichment efforts, our comprehensive Coverage extension uses inclination to watch esports on Huya platform, enhancing our market share of several major events. Our licensed tournaments covered approximately 40 game titles in 2024. In the fourth quarter alone, we broadcast over 100 licensed esports tournaments. Featuring major events such as League of Legends World 2024 and Demacia Cup, Anna of Kings KPL Grand Finals, and Counter-Strike 2 Shanghai Major and Blast Premier World Final, solidifying our content advantage. We also broadcast over 35 self-organized esports tournaments and entertainment PGC shows. During the fourth quarter, among these events, LOL's Legend Cup S2, HOK's Super Platform Cup, and Valorant's Wally Cup were quite popular. In addition, we hosted Xiang Wang Cup and Huya Jiangshu Village Games for HOK and Crossfire competitions in the fourth quarter, attracting widespread participation from local communities. Furthermore, this year we continue to develop our self-organized tournaments to complement the licensed tournaments on our platform and provide our users with a steady stream of fresh content. In doing so, we reduce the gap between our major licensed tournaments and in-house produced content for both League of Legends and Honor of Kings significantly. from over a month in 2023 to no longer than two weeks in 2024. We also enhanced the influence of our in-house produced content by engaging more popular broadcasters and fostering greater interactions in our game community. GUYA currently leads the industry in the number of top-tier in-house produced e-sports events and audience scale. According to our internal statistics and estimates, GUYA captured over half of the market share for the industry's top-tier in-house produced e-sports events in 2024. In particular, our flagship Legend Cup H2 has set a new standard for premier self-organized tournaments across various platforms. Building on the success of its inaugural season, we boosted the event's viewing and entertainment value this year with upgraded team formation rules. match schedule during and gameplay design as well as international players participation. Increase in the events derivative content and sponsorship revenue clearly reflect Legend Cup's rising IP value. We are also delighted to see that the viewership metrics of the Legend Cup series on our platform nearly equal or even surpassed those of some top tier licensed esports events. In 2025, we intend to replicate our successful self-organized tournament model to encompass a wider array of popular esports titles on our platform. Alongside the upcoming Legend Cup Season 3, which will begin at the end of March, we will also launch premier VR-branded tournaments for Dota 2 and Valorant, creating more high-quality IPs. We invited everyone to stay tuned for this exciting event. Turning now to our technology and product upgrades, which drove business improvement throughout the year. To further enhance Wea's esports community vibe, we launched a series of product features on our app around tournaments to increase viewers engagement and facilitate access to professional esports analysis. During the Masiya Cup, we introduced customizable team sim live channel skins and bullet chat effects as well as pre-match analysis and real-time data based on event statistics. Additionally, we developed features that allow viewers to access in-team chats during matches and flexibly switch between the first-person perspective of different players, which will gradually be integrated with our content release to provide inclusive content for team fans. We also launched a Huya rating section on our platform, providing users with a professional forum for esports rating and reviews of esports players, tournaments, broadcasters, and more. This section has quickly gained recognition and active participation from users. For instance, by the end of the event in early March, this year's LPL split one has received 6.8 million total of user ratings, representing an increase of approximately 80% compared to the cumulative rating of last year's LPL summer split, and more than double that of the event on another well-known rating platform during the same period. This not only reflects high user engagement with VR ratings, but also demonstrates its significant impact on our promoting interaction with the eSports community. Furthermore, we are actively embracing cutting-edge technologies such as AI. In February, we became the first game live streaming platform to fully deploy the DeepSeek R1 model. As deployed an AI assistant, feature to help users efficiently search for game strategies and live channels of interest. We will further advance our AI Plus live streaming strategy by applying AI large models to improve broadcasters' content creation efficiency through smart interaction upgrades, full-process automation, and data-driven operational support. This will also foster AI-powered digital IP innovation and facilitate the design of more distinctive visual streamers and delivering a novel experience for both users and content creators. By leveraging AI technologies throughout the entire cycle of live streaming content production, distribution, and consumption. We expect to energize the live streaming creators ecosystem with intelligent tools, preparing the human driven live streaming industry towards a technology driven future. We believe this innovative AI driven endeavors will create more immersive, interactive, experience for users and generate long term value for we are in live streaming is bought and more areas. Building on the meaningful achievement we have made so far. We will continue to progress our strategic transformation. Although challenges and uncertainties exist, we remain committed to building a more comprehensive game content and services platform exploring new technologies and deepening their applications to holistically improve our content creators and user experience. Moving into 2025, we will continue to respond pragmatically to changes in the market environment and capitalize on market opportunities, driving our long-term sustainable business development. With that, I will now turn the call over to our Acting Co-CEO and CFO, Raymond Lei. He will share more detail on our results. Raymond, please go ahead.

Thank you, Vincent, and hello everyone. I'll start with our first quarter results, followed by our four-year financial highlights and an update on our shareholder returns. Our total net revenues in the first quarter of 2024 were approximately RMB 1.5 billion, with gaming-related services, advertising, and other businesses nearly doubling their revenues year-over-year, naturally offsetting the macroeconomic and industrial environment's continued impact on live streaming revenues. The number of paying users in the first quarter rose over year, rose year-over-year to 4.5 million, excluding those who made in-game purchases through our game distribution business but didn't pay via our platform or related services, demonstrating engagement across our core user base. Due to the seasonal nature of major esports events scheduling and the related cost allocation, we have faced a gross margin pressure in the first quarter in recent years Nevertheless, in 2024, we further rationalized broadcaster related and export content costs, including costs related to AOL worth, resulting in an increase in our first quarter gross margin to 11.4% from 1% in the same period last year. Moreover, enhanced operation efficiencies resulted in a 23.8% year-over-year reduction in total operating expenses, further contributing to the improvement in our broad profit metrics. We achieved a non-GAAP net income of RMB 1.2 million in the quarter, marking a turnaround from the same period last year. We record non-GAAP net profit in all four quarters of 2024, highlighting significant progress in our business optimization efforts. Let's move on to more details of our Q4 financial results. Our total net revenues were RMB 1.5 billion for Q4, of which live streaming revenues were RMB 1.12 billion. and the game-related services, advertising, and other revenues were RMB 372 million, compared with total net revenues of RMB 1.53 billion for the same period last year. Cost of revenues decreased by 12% year-over-year to RMB 1.33 billion for Q4, primarily due to decreased revenue sharing fees and accounting costs as well as bandwidth and server custody fees. Revenue sharing fees and content costs decreased by 12% year-over-year to RMB 1.16 billion for Q4, 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 and in-house produced content. partially offset by the increase in game-related services, advertising, and other revenue sharing fees. Bandwidth and server custody fees decreased by 33% year-over-year to RMB 55 million for Q4, primarily due to continued technology and management enhancement efforts, as well as favorable pricing terms. Gross profit was RMB 170 million for Q4, compared with RMB 15 million for the same period last year. Gross margin was 11.4% for Q4, compared with 1% for the same period last year. Primarily attributable to decreased revenue sharing fees and accounting costs as a percentage of total net revenues. Excluding share-based compensation expenses, Non-GAAP gross profit was RMB 174 million and the non-GAAP gross margin was 11.6% for Q4. Research and development expenses decreased by 10% year-over-year to RMB 123 million for Q4, primarily due to decreased personal related expenses, partially offset by higher share-based compensation expenses. Sales and marketing expenses decreased by 45% year-over-year to RMB 63 million for Q4, primarily due to decreased marketing and promotion fees as well as personal related expenses. General and administrative expenses decreased by 19%. year-over-year to RMB 81 million for Q4, primarily due to decreased provision and office expenses, partially offset by higher share-based compensation expenses. Other income was RMB 4 million for Q4, compared with RMB 13 million for the same period last year, primarily due to lower government subsidies. As a result, Operating loss was RMB 93 million for Q4, compared with a loss of RMB 322 million for the same period last year. Excluding share-based compensation expenses and amortization of intangible assets for business acquisition, non-GAAP operating loss was RMB 69 million for Q4, compared with a loss of RMB 360 million for the same period last year. Long gap of trading margin was negative 4.6% for Q4. Interest income was RMB 75 million for Q4 compared with RMB 129 million for the same period last year, primarily due to a lower time deposit balance, which was primarily attributable to the special cash dividend paid in May and October 2024. Impairment loss of investments was RMB 151 million for Q4, compared with RMB 80 million for the same period last year. As we recognize, impairment charges are our investment attributable to the weak financial performance of certain investees. Land loss attributable to Huya Inc was RMB 172 million for Q4, compared with the loss of RMB 275 million for the same period last year. Excluding share-based compensation expenses, impairment loss of investment and arbitration of synthetic assets from business acquisition, net of income taxes, Non-GAAP net income attributable to Huya Inc. was RMB 1 million for Q4 compared with non-GAAP net loss attributable to Huya Inc. of RMB 190 million for the same period last year. Non-GAAP net margin was 0.1% for Q4. Diluted net loss per ADS was RMB 0.75 for Q4 Langevin diluted net income per ADS was RMB 0.01 for Q4. As of December 31, 2024, the company has cash and cash equivalents, short-term deposit and long-term deposit of RMB 6.73 billion compared with RMB 8.08 billion as of September 30, 2024. Moving on to our full year 2024 results, total net revenues were RMB 6.08 billion for 2024, compared with RMB 6.99 billion for the prior year. Live streaming revenues were RMB 4.75 billion for 2024, compared with RMB 6.45 billion for the prior year. Game-related services, advertising, and other revenues were R&B 1.33 billion for 2024, compared with R&B 544 million for the prior year. Long-gap gross profit was R&B 825 million for 2024, compared with R&B 831 for the prior year. Gross margin was 13.6% for 2024, up from 11.9% for the prior year. Non-capital income attributable to Huya Inc. was RMB 269 million for 2024, up from RMB 190 million for the prior year. and non-GAAP net margin was 4.4% for 2024, up from 1.7% for the prior year. Non-GAAP diluted net income per ADS was RMB 1.15 for 2024, up from RMB 0.48 for the prior year. Net cash provided by operating activities was RMB 94 million for 2024, compared with net cash used in operating activities of RMB 32 million for the prior year. For additional details on our full-year 2024 financial results, I encourage listeners to refer to our earnings press release issued earlier today. Finally, let me provide an update on our shareholder returns To enhance our shareholder returns and optimize our capital structure, we are pleased to introduce our 2025-2027 dividend plan, which is expected to distribute a total of no less than USD 400 million to our shareholders over the next three years. Specifically, for 2025, we have declared a cash dividend of US$1.47 per ordinary shares or per ADS. Totally approximately US$340 million. For 2026 and 2027, we expect to distribute no less than US$30 million in cash dividend annually. In addition, through our up to US dollar 100 million share repurchase program, we had repurchased 90.1 million Huya shares with a total aggregate consideration of US dollar 63.6 million as of the end of December 2024. Whois Board of Directors has also authorized the renewal and the continued usage of the unutilized quota under the Exceeding Shared Repair Trust Program until March 31, 2026. With that, I'd like to open the call to your questions.