HUYA Inc.

Good day and good evening, and thank you for standing by. Welcome to HUYA's second quarter 2025 earnings webinar. I'm Han Yuliu from the HUYA 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. Participant of management on today's call will be Mr. Vincent Junhong Huang, our Acting Co-CEO and Senior Vice President, and Mr. Raymond Peng Lei, our Acting Co-CEO and CFO, and Marguerite Shi, Head of Capital Markets. Amendment 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 latest annual report on Form 20F 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 applicable law. Please also note that WHOYA's earnings press release and this conference call include discussions 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.

Hello, everyone. Thank you for joining our earnings conference today. It has been exactly two years since I first spoke with you on our August 2023 earnings call. Over this time, Huya has undergone a lot of transformation. uncovering new opportunities, executing on clear strategy and deepening our strategic alignment with Tencent and the broader gaming industry. Today, I'm pleased to share the progress we have made and the opportunities ahead. By leveraging our cross-platform strategy, we have achieved an average of 162 million monthly active users across WEAS platforms. and extended our reach even further through the distribution of our content and services on third-party content platforms, such as WeChat channels, Douyin, and Kuaishou. Over the past year, we have strengthened collaborations with these platforms, enabling cross-platform streaming and co-creating professional content. This not only expands the reach of our high quality content, but also build the foundation for new monetization opportunities in game distribution, in game item sales, and potentially game publishing. One of the industry's trends we are seeing is the rising importance of content-driven marketing in publishing and long-term operation of game titles. This trend plays directly to Huya's core strengths. Our top-tier game live streaming capabilities allow us an influential esports ecosystem and deep expertise in producing high-impact short-form videos optimized for each social platform. By combining our rich professional production capabilities and community-influenced we are able to help game publishers engage players more deeply, extend the life cycle of their titles, and drive player spending. As a result, our game-related services, advertising, and other revenues have grown significantly from RMB $122 million in Q2 2023 to RMB $414 million this quarter. This segment now contributes over a quarter of our total net revenues and from growth billing perspective accounts for over 40% of Wea's total transaction value. We see this segment as a key growth engine going forward with substantial room for further expansion as we deepen our partnership with game developers and broaden our service offering. This quarter, We further increase our portfolio of jointly distributed games in the domestic market to over 300 titles. Tencent's games such as Honor of Kings, Peacekeeper Elite, and League of Legends Mobile all performed strongly. Games from other partners such as Azure 2 and Xian Gong Zhan Ji also stood out this quarter. Progressing from our existing joint distribution of games, sales of in-game accessories and domestic items are naturally the next step for us. In the second quarter, gross billing from this category increased by 90% year-over-year, reflecting strong demand from our high-engaged user base. Given our ability to integrate sales seamlessly into live streams, esports events, and other content, often featuring influential streamers, we believe this business line has significant potential to scale further and become an increasingly important part of Huya's revenue mixed in the years ahead. Our community of game streamers remains one of FUYA's most strategic and valuable assets. We nurture their growth not only within the FUYA's ecosystem, but also across all leading content platforms, enabling them to broaden their reach and deepen audience engagement. Among the top 300 game live streamers nationwide, we continue to command the largest representation in the industry, a testament to our unmatched ability to attract, develop, and retain top-tier talent. With a user base composed of highly engaged hardcore gamers, We offer the perfect environment for emerging talent to gain visibility and build a loyal following quickly. Combined with the comprehensive professional support we provide, we continue to successfully introduce some of the most sought-after personalities for new releases. For example, one of the hottest games that is trending this summer is Tencent's Delta Force and the biggest live streamer of that game right now in terms of live channel average concurrent users and total short video views is on Huya. We helped him build his fame on Huya from the ground up. As we go to destination for esports live streaming in China, we continue to invest in esports content. driving deeper user engagement and strengthening our market leadership. In the second quarter, we live-streamed over 100 licensed esports tournaments covering premier domestic leagues such as the League of Legends Pro League, Kings Pro League, and Crossfire Pro League, as well as major international events including the LOL Mid-Season Invitational and the CS2 Austin Major. Currently, we are also bringing global competition to our audience through coverage of Esports World Cup in Saudi Arabia. Alongside licensed events, we produce over 40 in-house produced tournaments. including the LOL Legend Cup Season 3, Dota 2 Immortal Cup, and Honor of Kings Sound Cup Gold Tournament, as well as entertainment, show lights, clear the billiard table goals. The Immortal Cup Finals showed up in just seven minutes, while our Huya Hyper Esports Carnival, Branding Esports Music, and Culture Tourism deepened fan loyalty and expanded our audience reach. In July, in partnership with Tencent, we launched the inaugural Delta Force Diamond Champions Summer Season featuring 24 leading domestic teams. The event showcased FUYA's production and technology leadership. from 4K ultra high definition and 120 FPS streaming to multi-screen viewing and in-team voice chat, delivering a truly premium and interactive experience for fans. Leveraging our content integration strengths, we have begun entering the game publishing arena. In Q2, we piloted a content-led launch strategy for Gordon is full of victory, Nicky, using live streamer showcases, sports promotion and creator videos. The campaign delivers strong results and we are actively pursuing additional publishing partnerships. Our overseas initiatives are also gaining momentum. We are now reach tens of millions of monthly active users internationally through our mobile application service platform, live streaming, and others. Through these products, we are able to build up our gamer communities and local marketing capabilities and accumulate a suitable user base of hardcore gamers, particularly in genres like FPS and mobile. These efforts will position us to capture opportunities in the growing overseas game-related services market. Before I pass the call on to Raymond, I would like to update you on our AI strategy. AI is becoming embedded in every aspect of our operations, from AI plus live streaming to AI plus IP and AI plus services. Using our proprietary gaming data sets, Deep user insight and years of content, we have built intelligent gaming analytic models and large language models for specific service needs. Some initiatives enhance user experience such as our AI agent, Hu Xiao-Ai, which delivers real-time engaging commentary during esports streams, boosting viewer interaction during events like the LOL Legends Cup Season 3. We are also developing AI-powered virtual live streamers using high-fidelity avatar and expression technologies to add new dimensions to our content. Others create new consumption opportunities. For example, our AI sparring partners for esports players provide real-time tactical alerts, response to players' emotions, and offers personnel analysis. Encouragement, this technology also powers the industry's first AI game companion robot, the Huya iSilver Bot, launched with Invictus gaming IG team at ChinaJoy, which generated significant market buzz. In short, with our dedicated efforts over the past two years, have demonstrated to the market that we are more than just a live streaming platform, but a game-related entertainment and service provider capable of adding value to the entire gaming ecosystem. We will continue to deepen our engagement in the gaming industry, strengthen collaborations with industry partners, expand our business boundaries, and innovate our service offerings. We will also focus on overseas expansion and AI initiatives paving the way for OUYA's long-term sustainable growth. With that, I will now turn the call over to our Acting Co-CEO and CFO Raymond Lei. He will share more details on our results. Raymond, please go ahead.

Thank you, Vincent, and hello everyone. I'll start with an overview of our financial performance. Our total net revenues for the second quarter reached approximately RMB 1.57 billion, increasing both year-over-year and quarter-over-quarter for two consecutive quarters. Of these, live streaming revenues stabilized with a slight sequential increase to RMB 1.15 billion, and game-related services, advertising, and other revenues grew to RMB accounting for 26.4% of total net revenues. The number of domestic paying users in the second quarter remained flat compared with the first quarter, standing at 4.4 million, excluding those who made in-game purchases through our game distribution business but didn't pay via our platform or related services, as well as overseas paying users. Thanks to optimized content costs, particularly those related to esports tournaments, we improved our gross margins sequentially to 13.5% for the quarter. This discipline also contributed to reaching break-even non-GAAP operating profit, a significant milestone in our path to improve profitability. We also achieved non-GAAP net income of RMB 48 million, marking our sixth consecutive profitable quarter. Let's move on to more details of our Q2 financial results. Our total net revenues were RMB 1.57 billion for Q2 compared with RMB 1.54 billion for the same period last year. Live streaming revenues were RMB 1.15 billion for Q2, compared with RMB 1.23 billion for the same period last year, primarily due to the continued impact of the macroeconomic and the industrial environments. Game related services, advertising and other revenues were RMB 414 million for Q2, compared with RMB 309 million for the same period last year. The increase was primarily due to higher revenue from game-related services and advertising, which were mainly attributable to our deepened cooperation with Tencent and other game companies. Cost of revenues increased by 2.1% to RMB 1.35 billion for Q2 primarily due to increased revenue sharing fees and accounting costs. Partially offset by decreased bandwidth and server capacity fees, revenue sharing fees and accounting costs, a key component of cost of revenue, increased by 2.6% to RMB 1.2 billion for Q2. Primarily due to increased broadcaster related costs, partially offset by lower costs related to licensed esports content. Cross-profit was RMB$212 million for Q2 compared with RMB$215 million for the same period last year. Cross-margin was 13.5% for Q2 compared with 13.9% for the same period last year. primarily attributable to increased revenue sharing fees and accounting costs as a percentage of total net revenues. Excluding share-based compensation expenses, land-gap gross profit was RMB 216 million, and land-gap gross margin was 13.8% for Q2. Research and development expenses decreased by 5% year-over-year to RMB 122 million for Q2, primarily due to decreased personal related expenses and share-based compensation expenses. Sales and marketing expenses decreased by 6% year-over-year to RMB 58 million for Q2, primarily due to decreased channel promotion fees General and administrative expenses remain flat year-over-year at RMB 64 million for Q2. Other income was RMB 8 million for Q2 compared with RMB 13 million for the same period last year, primarily due to a notable settlement income from disputes in the second quarter of 2024 and lower government subsidies. As a result, Operating loss was RMB 24 million for Q2 compared with a loss of RMB 26 million for the same period last year. Excluding share-based compensation expenses and the abolition of intangible assets from business acquisitions, non-GAAP operating income reached a break-even for Q2 compared with a non-GAAP operating loss of RMB 3 million for the same period last year. Interest income was RMB 59 million for Q2 compared with RMB 103 million for the same period last year, primarily due to a lower time deposit balance, which was primarily attributable to the special cash dividends paid. Net loss attributable to Huya Inc. was RMB 5 million for Q2 compared with net income attributable to Huya Inc. of RMB 30 million for the same period last year. Excluding share-based compensation expenses, impairment loss of investments and the amortization of intangible assets from business acquisition, net of income taxes, non-GAAP net income attributable to Huya Inc. was RMB 48 million for Q2, compared with RMB 97 million for the same period last year. Non-GAAP net margin was 3% for Q2. Diluted net loss per ADS was approximately RMB 2 cents for Q2. Non-GAAP diluted net income per ADS was RMB 21 cents for Q2. As of June 30, 2025, the company had cash and cash equivalents, short-term deposits and long-term deposits of RMB 3.77 billion. compared with RMB 6.25 billion as of March 31, 2025. Finally, let me provide an update on our shareholder returns. Through our up to US dollar 100 million share repurchase program, we had repurchased 22.8 million Huya shares with a total aggregate consideration of US dollar $75.4 million as of the end of June 2025. Additionally, we distributed a total of about US$340 million in special cash dividends during the second quarter. Going forward, we will continue to focus on performance, advancing our expansion initiatives, and deepening our industry alignment to create long-term value for our shareholders. With that, I'd like to open the call to your questions.

Thanks, Raymond. And hello, everyone. If you are dialing in by phone, please press 5 to ask a question and then press 6 to unmute yourself. If you are accessing the call from the Tencent meeting or Vogue 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 Richie Sun from HSBC. Hi, Richie. Your line is open. Please go ahead.

Vincent, Raymond, Margaret, hi. Thank you, management, for taking my questions. I'd like to ask about the game-related services business. So can you share more on the updates? How does it look like in terms of the development and how should we think about second half? Thank you.

First of all, thank you for your question, Richie. Let me answer this question. In the past two years, in terms of game-related service and business expansion, we have been able to generate more than 300 games in Q2. Based on the connection between our streamers and users, we have naturally expanded the service and business of the game to the purchase of streamers and props. In the second quarter, the total GMV of the wholesale of our props has increased by about 90%. We also hope that in the future, we can establish a new system for users to buy the first-hand, more unique, or more affordable props on the Huya platform. As we continue to expand the SKU of our props, and improve the basic implementation of our wholesale, Hi, Richie, it's Margaret.

Let me translate that for you. We continue to expand and deepen our collaborations with game companies, increasing our portfolio of joint distributed games in the domestic market to over 300 titles. Based on our game streamer ecosystem and the connections they have with our users, It is only natural that we take a step further and extend game services to the sales of in-game accessories and cosmetics through these debas. We're at the initial stage of this effort, and we have recorded a 90% year-over-year increase this quarter. As we further expand and diversify our in-game accessories SKUs, perfect its related transaction infrastructures, and enhance users' mindset about our value proposition, We believe sales from games accessories is likely to be one of the new goals drivers for us.

OK. and strengthen our ability to integrate content. We gradually expanded our game publishing business. In the second quarter, we combined the launch of The Goddess of Victory and New Hope, and tried to publish content on the whole network. Through the first broadcast of the live broadcast, based on the promotion of the event content, content creators, videos, and other forms, we achieved significant results. We are also actively looking for more opportunities to cooperate in the game industry.

On top of that, we have strengthened our collaborations with various platforms and products. This approach has allowed us to expand the influence of our high-quality content and services further to a wider audience. Building on our strong content integration capabilities, we are strategically entering the game publishing arena. In the second quarter, we piloted a comprehensive online content publishing strategy for the launch of Goddess of Victory Nikki. With provident live streamers showcasing gameplay, promoting through esports events and producing videos in collaboration with content creators, this campaign yielded impressive results. Encouraged by this early success, we are actively pursuing more cooperation opportunities within the game sector.

Thank you. And our next question comes from Yiwen Zhang from China Renaissance. Yiwen, please go ahead.

Thank you for taking my question. So we have noticed the company has hosted the first sports event for Delta Force. So can you discuss what is the feedback so far and how many for the event to us? Thank you.

OK, thank you for your question, Yiwen. Under the official authorization of the Triangle Action Game, we held the first Triangle Action DTC Diamond Championship. This championship is based on the high standard of professional league. At the same time, it also attracts the participation of 24 domestic professional clubs. In July, in partnership with Tencent, we launched the inaugural Delta Force Diamond Champions Summer Season.

Between 24 leading domestic teams, the event showcased Huya's production and technology leadership, from 4K ultra high definition and 120 frames per second streaming to multi-screen viewing and in-team voice chat, delivering a truly premium and interactive experience for fans.

During the final, the audience enjoyed the exciting live broadcast In addition to participating in fun interactions, there is also the opportunity to win special props for the three-point action prepared by the project team for the players. These include the Beijing Star Puppet Pack, the Puppet Pack for Overthrowing, the Puppet Pack for Deep Threat, and other luxurious rewards for those who are being chased. When you have the chance to collect these rare props in the Chenjing City official tournament,

During the finals, viewers tuning into Hoya Live's DDC exclusive stream will also get a chance to win rare in-game items, especially prepared for the event, including some of the highly sought-after bundles, such as Bei Zixin, Kunpeng Bao, et cetera, making the experience much more fun and immersive.

Thank you. And our next question comes from Yanyan Xiao from CICC. Hi, Yanyan, please go ahead.

Thank you, Guan Yicheng, for answering my question. My question is about overseas business. We have seen that the company's sales of overseas business has reached tens of millions. Can you tell us about some of the progress of overseas business? Thanks, management, for taking my question. And my question is about overseas business. Can you provide us with a detailed update on the progress of overseas operation? Thank you.

First of all, I would like to thank Yangyang for this question. In the overseas market, our layout has recently achieved a more obvious progress. At present, our overseas total sales have reached tens of millions. We have gradually built up the ability to cover gaming live broadcasts, gaming communities, application distribution, prop sales, and local marketing. Our overseas initiatives are also gaining momentum.

We are now reaching tens of millions of monthly active users internationally through our mobile application service platform, live streaming and others. Through these products, we are able to build up our gamer communities, our local marketing capabilities and accumulate a sizeable user base of hardcore gamers, particularly in genres like FPS and mobile. These efforts will position us to capture opportunities in a growing overseas game-related service market.

In our strategic transformation process, our previous user data did not fully show our results, especially the progress of our overseas development. In fact, the potential of overseas users is also very huge. This time, we also provided the overall MAU data. We also hope to use this opportunity to fully present the situation of the domestic, regional, and overseas markets to investors. This user space also provides a broader opportunity for our future development.

As you might have noticed, we changed our definition of MAU this quarter to reflect the progress we've made during this period of transformation, particularly in overseas markets. What we've seen over the past few years and is convinced of is that the potential of international user base is immense in terms of growth and monetization opportunities.

Thank you. We'll then take a question from Nelson Chong from Citibank. Nelson, please go ahead.

Hey, Vincent, Raymond, Margaret, Han Yu, thank you for accepting my question. Congratulations to the company for continuing to achieve results in business transformation. My question is about the future layout of AI in the company, including live broadcasts, contests, Hu Xiaoyi, AI desktop robots online, and the company's future ideas and positioning in game AI. Thank you. Thanks, management, for taking my questions and congrats on the solid progress of business transformation during the quarter. My question is related to the company's future plans on AI development, especially in live streaming experience, esports tournaments, AI desktop robot launched within this year, and future positioning in AI gaming. Thank you.

OK, first of all, thank you for your question, Nelson. It's still up to me to answer this question. As we mentioned earlier, with the accumulation of a large number of game data on the Yitoh Huya platform, the behavior of user interaction and the content of the live broadcast, we have also developed advanced smart game analysis models and large-scale models in the field. From AI plus live broadcast, AI plus service, AI plus IP and other dimensions, we continue to promote the combination of our AI with various businesses. Our AI strategy focuses on improving user experience and creating more new consumer scenarios. In the last quarter, we introduced Hu Xiaoyi, which is our example of improving user experience. AI robot Huya AI super body has also created a new consumer scene. Our AI technology has achieved the cross-reference development from software to hardware. The image of AI super body and the product of the well-known team IG alliance As mentioned in prepared remarks, leveraging our proprietary gaming datasets, deep user insights, and years of content,

We have built intelligent gaming analytic models and large language models for specific service needs. AI is becoming embedded in every aspect of our operations, from AI live streaming to AIP and AI services. Some initiatives enhance user experience, such as our AI agent, Who's AI, which delivers real-time engaging commentary during esports streams, boosting viewer interactions during those events. Others create new consumption opportunities, such as Huya iSuperbot, which is a great example of that. In collaboration with the well-known esports team iG, we announced these next-level robots that not only mirror players' looks and voices, but also offer co-experiences like virtual sparring and emotional companionship.

Huya i超体依托虎牙自研的这种游戏画面视觉的识别的与深度游戏策略的这个分析模型构建了懂游戏懂情绪懂用户的智能的这个交互体系那也基于虎牙独有的这个海量的电竞赛事和游戏的知识库i超体呢可以更好的为玩家提供游戏的这个策略指导和陪练的服务 On the other hand, based on Huya's dual voice and emotion recognition model, iXaoti can also use the player's tone and dialogue content to judge the player's emotions and give corresponding feedback. It also combines the ability to map memories. It can even remember the user's favorite hero, operating habits, and key moments, allowing companion AI to respond from function to emotional connection.

Powered by our proprietary visual recognition technology and due strategy analysis, the robot is supposed to get the game, get you, and get your feelings. Leveraging our knowledge in games and esports, the robot is your sparring partner and your coach. Again, using our proprietary models, our robot reads your mood from your tone and then your response. It also has a memory graph, which helps the robot remember what our users' favorite heroes are, what their preferred play styles are, and what their favorite moves are.

Thank you. Now we will take our last question today from Maggie Yeh from CLSA. Hello, Maggie, please go ahead.

Please unmute yourself. Okay, now it's good.

Okay, good evening, Manager Zeng. We noticed that the income ratio of the live broadcast business in 2Q is now 74%. Compared to that, it is also a steady trend. I would like to ask Manager Zeng how he looks at the future development of live broadcast business and how we look at the income and profit trend this year. Thanks for taking my question. My question is related to live stream business, which accounted for 74% of total revenue this quarter and seems to have stabilized quarter over quarter. How do you think about the overall trend of live stream business as well as the total revenue trend for 2025 in addition to modern trend? Thanks a lot.

Thank you, Maggie. Let me answer this question. Our live streaming revenue continues to stabilize with a slight increase to RMB 1.15 billion Q over Q.

We continue to see overall revenue back on its growth trajectory, driven by our strong growth from gaming-related services, advertising, and others. This segment grew 34.1% year-over-year to RMB 414 million this quarter.

根据目前的情况,在行业环境相对平稳的背景下, 随着用户付费意愿的趋稳, 我们预计直播收入规模将维持较为平稳的状态。 而游戏相关服务, Advertising and other income will also achieve faster growth this year, especially as we continue to strengthen cooperation with the gaming industry and explore new areas of growth. Therefore, based on the current situation, we expect that the total income of Huya this year will achieve the same growth as the overall income, and the annual income will also achieve growth.

Based on what we are seeing right now, we expect live streaming revenues to remain broadly steady as the overall industry and user behaviour continues to stabilise. On the other hand, we expect game-related services, advertising and other revenues to be the main driver for the company as we expand and deepen our partnerships with various game companies. And all in all, we expect our total net revenues to grow in the second half of the year as well as the full year.

Yiren Fangbian. In the second quarter, we will continue to optimize the content cost of the season. In the second quarter, we will continue to optimize the content cost of the season, and under the influence of the overall income increase, the interest rate will increase by 13.5% compared to the first quarter. It is particularly worth mentioning that we achieved a net profit and loss balance in this quarter. We also achieved a net profit of about 48 million yuan, which is a profit of six consecutive quarters. In terms of profitability, in Q2, we continued to optimize our content costs, including those related to esports events, and benefited from higher total net revenues.

As a result, our gross margin improved sequentially to 13.5%. Notably, we achieved non-GAAP operating profit break-even this quarter and recorded a non-GAAP net profit of approximately 48 million RMB. This is our sixth consecutive profitable quarter. We will continue to focus on enhancing operating profitability and expect a meaningful improvement in our non-GAAP operating profit for the full year 2025 compared to 2024 under normal circumstances.

In addition, I would like to remind everyone Since we have already made a relatively large amount of shareholder return measures since last year, such as a decrease in net net profit and a fluctuation in the value market, we expect the interest income in the second half of this year to be significantly lower than that in the first half of this year. When everyone is looking at our net profit, we need to consider this part of the reason.

And also as a reminder, our interest income in the second half of the year is expected to be significantly lower than in the first half. And this is due to a lower cash balance resulting from the sizeable shareholder return measures that we implemented since last year, as well as the fluctuations in market interest rates. Please take this into consideration when doing your modeling for our net income for the remainder of the year. Thank you very much.

Thank you once again for joining us today. If you have further questions, please feel free to contact Huya Investor Relations through the contact information provided on our website or PS&T Financial Communications. This concludes today's call and we look forward to speaking to you again next quarter. Thank you.