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.