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Q1 2023 Earnings Conference Call
spk07: Ladies and gentlemen, thank you for standing by and welcome to the Juhu, Inc. First Quarter 2023 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. Today's conference call is being recorded. At this time, I would like to turn the conference over to Ms. Iris Liu, IR manager. Please go ahead, ma
spk04: 'am. Thank you, operators. Hello, everyone. Welcome to our first quarter 2023 Financial Results Conference Call. Participants on today's call will include Mr. Zhou Yuan, founder, chairman, and chief executive officer of Juhu, Mr. Li Dahai, chief technology officer, and Mr. Harusha, our chief financial officer. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's prospectus and other public filings as well with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at .Juhu.com. I will now turn this call over to Mr. Harusha, CFO of Juhu.
spk02: you, Erin. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, founder and CEO of Juhu. Hello, everyone. Thank you for joining Juhu's first quarter 2023 earnings call. We are delighted to start 2023 with a solid first quarter highlighted with by sustained revenue growth and significantly narrowed net loss, both beating the market consensus. While continuously expanding our user base over the past two years, we have also been following and capturing the evolving demand for short-term online reading, including both knowledge sharing and no-votes. In addition to the various Yen selection membership services, we launched a new app, YenYen Story, in major app stores recently to serve the broader user content demand. As a part of Juhu's product matrix, YenYen Story will not only contain content generated from the Juhu community, but also provide more differentiated content. Moreover, YenYen Story will cover users from different tier cities and support more audiobooks by offering more effective essential strengths for content creators. The Yen selection's abundant premium content paired with our widely recognized brand name prepared the number of average monthly subscribing members to a record high of 14.9 million in the first quarter, representing 116% year over year and .5% sequential growth respectively. We also continued to advance our technology co-development during the quarter through a combination of internal initiatives and joint development efforts as we actively explored the possibilities and potential of revolutionary AI technology Juhu is now equipped with large language model technology that has 20 billion parameters. We launched our first large language model for LLM Zhihai to AI in April, aiming to enable our content creators to generate high quality content more efficiently. Additionally, our users may utilize our LLM summarization function to consume more content and accelerate their readings in a more enjoyable way. At the beginning of 2023, we optimized our organizational structure by combining advertising and content commerce solutions or CCS to enhance the overall competence and operational efficiency of our combined marketing services business. This upgrade has empowered us to better utilize the resources within the Juhu community and provide our clients with a more effective and comprehensive marketing solution. As we optimize our marketing services business, I will personally spend more time on the segment and the monitoring execution. Starting from the recent months, we have already seen a revival of advertisers' engagement in e-commerce and 3C sectors. We are confident that our marketing services will achieve sequential growth in the second quarter and pick up growth momentum in the second half of the year. Now, let me move on to our users and content, where we have made remarkable progress, especially in our short-form content. In the first quarter, we continued to broaden our content coverage and deepen our penetration across our cornerstone verticals. Optimizing our content composition and the format to better satisfy users' evolving needs to use their fragments time efficiently and obtain information quickly. To that end, we significantly upgraded our ideal tab on the ATP, making it a short-form content pool to complement the long-form knowledge-based content currently available in the Juhu community. We also expanded our short-form content library to cover more lifestyle and consumption scenarios in response to users' needs. By upgrading an array of tools and functions, such as picture editors and video captions, among many others, we provided a more efficient scenario to inspire creativity for new content creation. This exciting progress in content successfully drove an increase in the number of users in our community, driving our MAUs in March to more than 110 million. We achieved a re-acceleration in MAU growth in the first quarter, and expect MAUs will grow up to 120 million within 2023, to mark another historical height. While we remain dedicated to further solidifying Juhu's leading position as a platform for users to discuss and exchange ideas, we are also looking for ways to enhance our offerings by incorporating AI knowledge within our community. At the Juhu Discovery Conference in April, we introduced our AI strategy along with our first LLN, ShiHai2AI. Through investment and joint development efforts, we are accelerating our progress in integrating AI knowledge across various application scenarios throughout our ecosystem. The trending topic summary is our first trial AI function. By leveraging AI's language learning ability to collect thoughts and integrate answers, the trending topic summary is able to summarize answers and present them to our users in an intuitive and clear manner. We are now opening this LLN summarization function to more users via the Juhu mobile app. By further capitalizing on our unique advantages in both the data layer and the application layer, Juhu is committed to becoming an important developer and ultimately a leading contributor to the industry's overall development in this area of AI knowledge. Next, our membership of business. Driven by our premium content offerings and the continuously expanding brand influence, our paid membership of business grew rapidly during the quarter, delivering robust increases on both an annual and a sequential basis. Paid membership revenue for the first quarter increased by .2% year over year, while average monthly subscribing members grew by 116% year over year to 14.9 million in this quarter. We streamlined account creation procedures to improve efficiency and enforce the community compliance to protect the content creator's rights and benefits. As a part of our multi-brand strategy, we launched our new app, Yanyan Story, featuring numerous user-favored functions such as story search, audio books, and recommended reading lists. This new app will help us attract more membership subscribers beyond the Juhu community while building a distinct user base, seeking for more concentrated reading experience inside the Juhu community cohort. We hope Yanyan's differentiated content will also penetrate the massive internet users from tier 2 and tier 3 cities in China. Now moving on to our vocational training business. Remu from vocational training business increased by .6% year over year to R&B 107 million in this quarter. We grew our footprint in the vocational training industry value chain by organic growth and business acquisition. To see the greater potential in the graduate student entrance examination market, we recently completed the acquisition of MBA master, a training institution specializing preparation for MBA entrance examinations in China. Completing the integration of MBA master has further enhanced our industry competence with an improved business structure and enriched service office. Additionally, we continue to expand our vocational training services across major categories by developing programs that are in high demand in this evolving market, including civil service examination, ESG, judicial examination, and story writing, among others. As I mentioned earlier, we are integrating AI technology into our course offerings as we look to enhance the overall quality and user experience. Encouraged by the positive feedback we have received on our first new AI-empowered program, we will continue to explore innovative technologies. Before I conclude, I would like to provide a brief update on our ESG efforts. We published our ESG annual report for 2022 last month, presenting Zhihu's longstanding commitment to social responsibility. As a leading online content community in China, our top priority and the greatest asset is and will always be our people, our employees, our content creators, our users, and our society. Therefore, we strive to holistically improve our ecosystem for each of these stakeholders throughout 2022. With the initiative including an upgraded leadership development system for employees, our Haiyan campaign 4.0 incentive plan for content creators and an array of programs to protect and serve our most vulnerable users, including minors, those with disabilities, and seniors. We also leveraged our wealth of knowledge content to promote childhood education, particularly in rural areas, as we believe education equality and the growth and development of China's young generation are critical to societal progress. Going forward, we will remain committed to our stakeholders, improving their lives as we seek new ways to create value for our society and our planet sustainably. Looking ahead to the rest of 2023, we will remain focused on both monetization and user growth. Marketing services and paid membership have become our major revenue drivers during our continued expansion of the vocational training business and the LLM development. We will further expand the discussion and search scenarios in the Zhihu community as we leverage our resources and refine experience to study and respond to the evolving needs, thereby better serving both users and clients. Thanks to our organizational optimization and operational efficiency improvement, in the first quarter, our non-GAAP net loss narrowed to RMB 120 million. We suggested a net loss margin narrowed to 12.1%. We expect our business growth will continue accelerating and we are confident we will achieve 20% -over-year increase in MAU as we strive to make innovative breakthroughs. We also believe our passion for progress and dedication will continue to empower our strength and resilience as we grow in this exciting and dynamic industry. This concludes Mr. Zhou Yuan's remarks. I will now turn to our financial details in the first quarter for review of our first quarter 2023 results. Please see our press release issued earlier today. We were excited to commence 2023 with a strong first quarter. Both our top line and the bottom line meet the street consensus while we operating cash flow turned positive for the first time since our initial public offering. Total revenue for the first quarter increased by .8% -over-year to reach RMB 194.2 million, effectively beating the market consensus. Our paid membership and vocational training services continued to accelerate robust growth during the quarter, increasing their contribution to total revenue to 46% and 11% respectively. However, as a variety of market factors continue to affect the overall online advertising market, advertising spending remained sluggish in the first quarter to mitigate the we optimized our organizational structure during the quarter, enabling us to better utilize our community resources and enhance our service capability by integrating brand advertisements and CCS. Starting from the first quarter, our advertising business is now combined with CCS into marketing services to align with our new strategy and upgraded business structure. Our paid membership revenue for the quarter was RMB 54.8 million, up .2% -over-year from RMB 221.7 million in the same period of 2022. Our average monthly subscribing members grew by 116% -over-year to 14.9 million, which is a record high. Our appealing premium content and outstanding user experience continue to attract a broader user base even beyond our Juhu community. The company's marketing services revenue for the quarter was RMB 392.1 million. We are encouraged to see some recent signs of recovery in our marketing services in the recent months, and we've had our marketing services business to gain faster recovery during the second half of this year. Our vocational training business revenue for the quarter reached RMB 107 million, representing a -over-year increase of .6% from RMB 39.5 million in the same period of 2022. Moving forward, we will continue to enhance our service capabilities and advance our footprint in the industry through both organic growth and business acquisition. Growth profit for the first quarter increased by .7% -over-year to RMB 512.2 million. Growth margin expanded to .5% from .1% in the same period of 2022, representing more than six percentage point expansion thanks to our enhanced monetization efforts and the improvement of our cloud services and the bandwidth utilization efficiency. We were particularly happy to see our investment in research and development rewarded us with the savings in the cloud service utilization. Total operating expenses for the first quarter were RMB 729 million, down by .9% from RMB 983.7 million in the same period of 2022. Selling and marketing expenses decreased by 12% to RMB 445.6 million from RMB 506.6 million in the same period of 2022. The decrease was primarily due to our decision to spend the decrease in salaries and welfare expenses for sales and marketing related personnel. In the meantime, the number of TruHut MEUs recovered significantly to 110 million in March. We will remain dedicated to driving user growth through our ongoing content ecosystem-first strategy. Research and development expenses increased to RMB 183 million from RMB 166.5 million in the same period of 2022. The increase was primarily attributable to the increase in the salaries and welfare of research and training for this year's largest technology upgrades. Our large language model will gradually serve a broader user base in the TruHut community going forward. General and administrative expenses decreased by .7% to RMB 100.4 million from RMB 310.6 million in the same period of 2022. Primarily due to the lower share-based compensation expenses recognized and the decrease in professional salaries. Benefiting from our ongoing operations, efficiency improvements, and the cost control strategy, we greatly narrowed our net loss into one. Our gap net loss in the quarter was RMB 179 million, narrowing by .9% year over year. Our adjusted net loss on a non-gap basis, which primarily excludes the share-based compensation expenses and amortization of intangible assets resulting from business acquisition was RMB 120.2 million for the first quarter down by .3% from the same period of last year with an adjusted net loss margin of 12.1%. In this quarter, we generated RMB 69.9 million operating cash flow, marking the first time we have achieved positive operating cash flow since our IPO. This milestone demonstrates to whose revenue diversification and business model can generate positive cash flow from its operations and represents an additional step towards becoming a profitable company. Now moving to our balance sheet. As of March 31, 2023, the company had cash and cash equivalent, term deposits, and a short-term investment of approximately RMB 6,258 million compared with RMB 6,262 million as of December 31, 2022. Also, as of March 31, 2023, we have repurchased approximately 6.9 million Class A ordinary shares at an aggregate price of US dollars, 17.8 million. This concludes my prepared remarks on our financial performance for this quarter. Let's turn the call over to the operator for the Q&A section. Thank you.
spk07: Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Vicky Wei with Citi.
spk05: Thank you. For evening management, thanks for taking my questions and congrats on the stronger than expected quarter. Will management share some color on the company AIGC technology strategy, and how should we think of the AI investment and the future monetization potential? Thank you.
spk02: Thank you, Vicky. I think your AIGC related strategic questions will be answered by our Chief Technology Officer, Li Dahai, and I will help answer your question about this question.
spk04: This is Li Dahai, CTO of the company. To answer your question, Si Hu is having unique positioning in terms of Chinese-based database in China, and we are uniquely positioned in the artificial intelligence revolution in China, especially in a lot of the data accumulation. Si Hu is open-minded towards AI revolution, and in early April, we have released Zhihai to AI, our large language model. We released Zhihai to AI through both internal investment and joint development with other companies. These have largely enhanced our speed of development and also brought along team and knowledge flow between different teams. Now we are having about 20 billion parameters in terms of our latest LLM, and we are planning to reach about 100 billion parameters for our large language model towards the end of this year. Thank you.
spk02: Hi, Vicky. Your second question about investment in this area. I think we are in the progress of doing the new plan for this large language model training, which is one of the most important technology development projects for this year. But I think the impact on the TML is no more than 300 million RMB. It's an answer to a question. Thank you, Vicky. Thank you.
spk07: Thank you. And the next question comes from Steve Koo with Goldman Sachs.
spk00: Good evening, management. Thanks for taking my questions. Congrats on the positive operating cash flow as well as the MAU crossing the 110-meter milestone. Could you please share with you the driving forces behind our strong MAU growth as well as our strategy and changes in user behavior and your outlooks for the future MAU growth? Thanks.
spk03: Thank you. This is
spk04: Zhou Yuan, CEO of the company. In the past year, we have made a lot of remarkable progress in terms of content ecosystem first strategy. This also helps us to grow our MAU through a robust growth. And during the first quarter of this year, an MAU has also experienced steady growth.
spk03: I would like to help translate
spk02: Mr. Zhou Yuan's answer to you. So first one, that our user acquisition strategy was executed well. The efficiency of the user acquisition is improving in the past quarter. And second, we have some adjustment of the product and the content as I presented during the remarks in the course group before. We are now focusing on the short form content. As you may know, we have a very large base of knowledge library. And now we are going to provide more short form content, which is very welcomed by our users. The third one, that we are working on is a new job in maybe tier one, two, three cities in China. This large group of users we estimated will be around 300 or 400 million people. That's a large potential for us. Lastly, importantly, we believe the AI driven technology, the large-scale models of technology will be used in the future. Thank you for the question. And back to your question about the user behavior changing. I have some numbers to be shared with you. The first one about the user engagement and user time span on mobile apps has been unchanged in comparison with Q4 last year. It was still between 27 to 28 minutes per day. And our membership, the people who are grabbing our membership and spend even more longer time, like 15 minutes per user per day. This is my answer to
spk03: the question. So the
spk02: users beyond 30 years old is growing the cohort according to our internal statistics. And the second is the female users is also increasing in terms of the percentage of the total users. Thank you.
spk07: And the next question is from Yuqing Zhang with CICC.
spk06: Comment shown with the recovery progress of marketing business. What time does management expect to return to positive growth? And we noticed that the revenue from advertising and CICC has been merged into the marketing services business this quarter. So just wondering companies consideration for the adjustment.
spk02: Thank you. Thank you. This is Henry. I will have to answer the question. So the first one, we have seen some rebound or recovery in the second quarter, but we believe that the headwind of the the market was still there. And we still have seen some sluggish of the clients of the advertisers, but the rebound was coming from the 3C and e-commerce sector. So we think the obvious recovery should be seen in the second half of this year. But the second question, that's because we have a business upgrading our advertising the products. So and to our according to our company levels new strategy, we believe that this adjustment about the CCS and advertising will be increase our marketing and competitive competence to increase our power of the whole integrated the marketing solution for our clients. So and also can support our more longer term growth. So that that will make the change. That answers your question.
spk07: Thank you. And the next question comes from Eileen Lin with China Renaissance.
spk06: Thank you. Thanks, Benjamin, for taking my question. I have a question regarding Zhigu's new app, Yan Yan Story. Can Benjamin share more details about future plan, long term growth potential, and likely monetization method other than membership? Thank you.
spk03: App. Yan Yan Story is
spk04: our new new release application. We have released, we have received a lot of positive feedback from the market for this new Story application. And we are generally optimistic about the future trend of future growth of this application. Yan Yan Story application compared with our original Zhigu Yan selection has a lot of clear differentiation. And the Yan Yan Story application is focused on premium short stories, and it provides immersive and concentrated reading experience for users. It also helps us to attract more users from the Yan Yan Story outside the Zhigu community. We believe that for this year, the Yan Yan Yan selection will continue its healthy and robust growth in terms of those -on-year growth and sequential growth. And in the future, with the improvement of the general macroeconomic condition in China, we will also generate IP gains from the application.
spk02: To supplement the CEO's answer to you, first, I believe that Yan Yan will be positioned as maybe different tiered city users in China. And Yan Yan's content will not be all the same as second from the product level. For example, Yan Yan will provide audio books or the flying bullet chat function. These are very welcome functions by our users, which is quite different from the Zhigu mobile app. That's our answer to you, Ali.
spk07: Next. Thank you. The next question comes from JJ Chen with Hightong International.
spk06: Good evening. Thank you for answering my question. Congratulations on the recovery and improvement of the operating system revenue in Zhigu. My question is about education. Education is still growing in this season. Please share with us your long-term strategy for education. For example, how to continue to grow and the progress of the business in the near future. Thank you for taking my question. Congratulations for the decent top-line goals and the quality operation cash flow. So my question is about the education business. Can you share the mid and long-term strategy for this segment? And for example, how to maintain the goals of momentum for this segment? And can you also provide more color on the recent update for this segment?
spk03: Thank you, Desi.
spk04: Thank you, Desi, for your question. Vocational training is one of the second growth drivers that we have been building on recently. And we think Zhigu is naturally uniquely positioned to do the vocational training. Firstly, it is because our user base is have a lot of overlap with the target users for vocational training. And secondly, is that our content to our vocational training services have a closed loop. And thirdly, is that our technology and data has will increase the efficiency of our vocational training. We have made a lot of progress in the last year. Our long-term goal for vocational training business is to enhance the efficiency and quality for this industry. And we have been focusing on two directions. Firstly, is that we are diversifying to provide comprehensive services for our clients. And secondly, is that we will utilize our data and technology to enhance the efficiency to provide better services for our customers.
spk02: To supplement the CEO's answer, the company is very emphasizing the focusing on the reason the development of the knowledge to be applied to the whole education or vocational training industry. And we believe that our large-length model training will also empower our vocational training business in the future. That's our answer to your question. Next.
spk07: Thank you. The next question comes from Thomas Strong with Jefferies.
spk06: Thanks, management, for taking my question. My question is how should we think of the GP margin outlook and the timing to reach breakeven? Thanks.
spk02: Thank you, Lauren. My answer to your question is quite straightforward. The first one, we are seeing some progress in the gross margin improvement in this year and in this quarter. So, it's too early to say what kind of the gross margin to be achieved within the next few quarters. But believe us that we are doing the cost control strategy as well as improving our efficiency. So we believe that we are on the way to improving our margin. The second question is that because we have the new investment in the R&D development for our large-language model training, so this also has some impact on our P&L forecast for the rest of the year. So we believe that our breakeven point will be the sum quarter next year, 2050. That's our answer to your question.
spk07: Thanks. Thank you. And this concludes the question and answer session. I would like to return the call to Iris Liu for any closing comments.
spk04: Thank you. Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or PSN financial communications. Thank you very much.
spk07: Thank you. The conference has now concluded. Thank you for attending today's presentation.