Q2 2020 HUYA Inc Earnings Call

[music].

We quoted I will now turn the call over Jim is Dana Chang Company Investor Relations. Please go ahead.

Hello, everyone and welcome to we ask 2022nd quarter earnings Conference call. The Companys financial and operational results were issued earlier today and I posted online you can also revealed the earnings press release by visiting the IR website at <unk> Dot Com Irritates me after call will be there.

Liberal on the IR website in a few hours participants on today's call will be Mr. Owns it don't Chief Executive Officer, If we are enemies, Catherine Lu Chief Financial Officer management. It will be game was prepared remarks ended the call will conclude with Q any session before we continue please note.

That today's discussion will contain forward looking statements under 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 a day for the info.

Nation regarding these and other risks and uncertainties is included in the company's prospectus and other public filings as filed with the U.S. FCC. The company does not assume any obligation to update any forward looking statements except as required under applicable law. Please also note that.

We ask earnings press release, and this conference call include discussions of on outdated GAAP financial information as well as on outdated non-GAAP financial measures, who asked press release contains a reconciliation nothing on outdated non-GAAP measures to be to the I'll now update it most directly comparable GAAP measures.

I will now turn the call over to our C O Mr own Jason. Please go ahead.

Hello, everyone. Thank you all for joining <unk> conference call today.

We are here to the outstanding results calls all core businesses in the second quarter all within the.

002 thousand 10 to all total net revenues grew solidly pool, but since a year over year to RMB 2.7 billion continue outrageous eating all up yes, it's been focusing.

Our gross profit grew 71% yeah over yet to be Fone hundred 75 million.

The demonstrating a lot faster growth and the in food, but all that to get it.

He lives better tools the user traffic.

Just by the fed.

Some people in China has allowed you named as the doomed.

They are they work and the school schedule.

We may paying down some momentum that we built a stollings a pandemic.

In Q1 owns them although anda.

We have compressed a year over year growth Oh, so they Oh center for the mobile M. A C O Oh, we are alive.

Leaching salmon they filed palms at 6 million in Q2.

As China come up and the People's activity.

Moving toward the no mostly.

And they offline internet cafes.

I will also be opened supporting.

The bombed Oh all of them.

No mobile and males in kill too.

Result, the average and mail Oh, we are locked.

Increased by 17% year over year to well hundred 58.5 million things that segment quota.

The presenting on net addition over 17 million from Q1, so growth was primarily driven by our dedication to continue oscillating lynching outcomes and the offerings.

Well for the improving so content that politics.

Next I.

I would allow us to share with you some updates about is a prelim.

Limon that Ray cooperation.

We have a stop here, though.

10 centers things have Vincent.

Became a lot of controlling shareholder in April we are loved streaming content is not available within a increasing then but oh, a 10 cents a game and the Paul.

Which will help has kept into expanded though pool I'll use us.

The who watched Oh I loved streaming content.

Adding 10 center games and the products such as a weekend. We can then center and the can kill mobile game center, well loved compared to <unk>, We all love lives and males.

In addition to all our who we are alive a meal.

He a male who works you, though we are alive do you mean content on fees.

No no link has.

Within 10 cents games and the product increased stuff bye.

16% in kill two from here what we are also in the process all building if caluzu one collect streaming services within some of those tests and then.

So I'll try to more broader cost us with the new so.

Service handsome demos.

It's a meal.

Lastly, GMCR gaming experience.

Lose that pick all a button and a essentially they can allow for all the cost to us.

In terms to all of that Youve booked for the month. We are also working together, what's happened in whereas diminishing such as the cooperating useful pulling them and content.

Terrific exposure for live streaming content and the what type of game.

Opportunities as well and the.

You know they do all the whole improve you'll notice viewing is spelled out all of their useful phenomena.

[noise] primarily for the importantly, we have always been trying to stay nimble to me to ever growing demand, although he owes us.

While continuously developing and expanding our product.

Offerings for long term growth most recently.

In June we launched the I'll call Calder gaming platform corridor, yoba offering over well they game titles. So perhaps well made that you there okay access for our broader audience to enjoy some fun all gains and the all along.

Prospects to four yoga is to enable audio that took place as.

With all the cost us and they enjoy you'll need to impact you some hits balances.

We have also strengthened our efforts will rebuild.

Mainly focused on middle Lance can we those.

The second quarter ever G. M is who watched though videos on our platform includes up by since they said yeah, we've yet to approximately 17 million our business isn't more diversified and Oh, all these efforts will help us.

<unk> future opportunities and the emerging using even stronger position in that game like she mean market.

With that.

I will now comes up for over a lot of careful Catherine Hu Yahoo insights on our operating metrics that and their financial details concerning please go ahead go ahead.

Thank you Mr. dong.

Hello, everyone.

Only mr. Tong remarks, I will start with updates on content enrichment and diversification.

From the broadcasters side, we have tapped the momentum with those doing the pandemic period in Q1, the number of average monthly active broadcasters remained at over 800000, representing a 12% year over year increase.

In the second quarter, we PUC tested 100 or to third party esports tournament.

On which the top performance include L.C. case spring season, which we have gained three year exclusive broadcasting rights.

As well as L.P.L. spring and summer season.

He L and K P out total viewership for this tournament reached the historical high of over 770 million in the second quarter, representing a 24% year over year growth.

Another key part of our continued commitment.

It's our self produced the comp.

In the second quarter, we organize the 34 esports tournament and entertainment shows.

Generating a total viewership of 112 million, representing a 36% year over year growth.

During the first half of this year the scale of new users that's what attracted to our platform. My this self generated comp.

Was comparable to third party E sports on them and we broadcasted.

I'm on the east for tournament that were produced.

That's to me crop season, six and then a fifth we I'm mobile game arena, where the top ones.

Scale of their viewers under the new users they brought to our platform was comparable to some asked rated third party official esports tournament.

On the entertainment shows from we produce a series of original PTC shows.

On that path to content diversification in this quarter.

For instance, who produce attitude.

And we Alipay show discovery in but that's stories of the game livestream industry.

<unk> export a music talent show that attracted great enthusiasm and participation among all broadcasters.

And the high screen and news show focused on E sports broadcasters unprofessional weeks.

Thanks to our dedicated efforts to drive quality content offerings.

In the second quarter.

Average mobile and meet use and I mean use reached record high 75.6 million and 168.5 million respectively.

At the same time, I woke well I'm a p. piece next month retention rate still remained over 70% in the second quarter.

In line with the continued growth of our users the paying users both where like also increased by 27% year over year to 6.2 million in the second quarter.

The live streaming revenue per paying user hopefully I like also increased year over year, we continued to unlock the monetization potential of our core user assets I effective operations of activities.

Such as we are fast parties the online event, we organized into it.

As we continue to grow globally, we reached over 27 million I mean use for our overseas business in the second quarter.

The growth was partially driven by increased internet usage as people were confined at home during the call that 19 outbreak similar to what we have experienced domestically in the first quarter.

Now, let me walk you through our financial highlights.

In the second quarter, our total net revenues grew by 34% year over year to RMB 2.7 billion. This is the ninth consecutive quarter that we exceeded our expectations since our IPO.

One thing I would like to point out here is that our game companion business revenue is booked after deducting the revenue sharing fees for the broadcasters well our virtual 15 revenue is booked before deducting the revenue sharing fees for broadcasters.

We started the Inking a companion business in the second quarter of last year. So the difference in accounting treatment previously had minimal impact between revenue growth in recent quarters. It has grown more sizeable in the second quarter, the gross billing generated from our businesses.

Actually grew faster than our recognized net revenues.

I would like to me revenues increased by 34% year over year to around RMB 2.6 billion in the second quarter. The girls was primarily due to the increase the number of paying users and the increase in revenue per paying user.

Most of which have expended year over year end quarter over quarter.

Advertising and other revenues increased by 49% year over year to RMB 132 million in the second quarter.

Probably driven by the increasing and diversifying number of advertisers.

There's a slight decrease in advertising revenue from Q1, mainly because of the higher user base set by called with 19 for gaming advertisers in the first quarter.

Oh profitability continued to improve in the second quarter as we benefited from the savings in optimizing our board caster signing fees, while we continue improving operational efficiencies.

Our non-GAAP gross margin improved or to 21.9% compared with 20.3% the first quarter and 16.9% and the second quarter last year.

Our non-GAAP operating margin improved to 12.1% compared with 9.4 person the first quarter and the 5.8%.

The second quarter 2019.

Our non-GAAP net margin improved to 13%.

Compared with 10.9% in the first of corridor.

[noise], an 8.5% in the second quarter 2019.

Now, let me move onto our financial details with year over year growth rates.

Cost of revenues increased by 27% to RMB 2.1 billion for the second quarter.

Primarily attributable to the increase in revenue sharing fees and content costs.

Bandwidth cost.

And personnel related costs.

Revenue sharing fees and content costs increased by 24% to RMB 1.7 billion or the second quarter, primarily due to the increase in revenue sharing fees relation to higher live streaming revenues.

And increase the spending in content creators.

He sports and self produced the content.

The year over year increase was partially offset by benefits from economies of scale.

And with cost increased by 35% to RMB 265 million for the second quarter, primarily due to an increase in bandwidth usage. Other result of our larger user base and enhance the lives streaming video quality.

This was partially offset by improved efficiency in bandwidth utilization through continue technology enhancement efforts.

Gross profit increased by 71% to RMB 575 million for the second quarter and gross margin increased to 21.3% for the second quarter.

Research and development expenses increased by 71% to RMB 180 million for the second quarter, mainly attributable to increased the personnel related expenses.

Selling and marketing expenses decreased by 4% to RMB 115 million for the second quarter. The decrease was primarily attributable to lower spending in marketing activities due to the impact of called in 19, and the partially offset by the increase the personnel related.

Expenses.

General and administrative expenses increased by 61% to RMB 120 million for the second quarter, mainly due to that accelerated share based compensation expenses recognized in April 2020 in the event.

A change of control.

In terms of the total share based compensation expenses. We also have a recent updates to share with you in April 2020 recognized RMB 57.7 million of share based compensation expenses.

Our cost of revenues and operating expenses from the accelerated vesting schedule of who Jaeson pre IPO options in the event of a change of control plus went to our 2017 sheer incentive plan an option agreement.

Operating income increased up by 190% to 98% to RMB 201 million for the second quarter and operating margin increased the to 7.5% in the second quarter.

Non-GAAP operating income, which exclude share based compensation expenses increased by 180% to RMB 326 million for the second quarter.

Non-GAAP operating margin increased the to 12.1 person for the second quarter.

Income tax expenses increased by 137% to RMB 51 million for the second quarter.

Net income attributable to we are inc. increased the by 86% to RMB 227 million in the second quarter.

Non-GAAP net income attributable to who I think which excludes share based compensation expenses increased by 106% to RMB.

351 million for the second quarter.

Diluted net income per adss.

<unk> arm B zero point 96 for the second quarter and non-GAAP diluted net income prayed, yes was RMB 1.49.

As of June Thirtyth, 2020, we had cash and cash equivalents short term deposits and short term investments of RMB 10.7 billion compared with RMB 10.3 billion as of March 31st 2020.

The increase was primarily due to net cash provided by operating activities of RMB 512 minutes for the second quarter.

That concludes the review of our second financial second quarter financial.

As you May have noticed we did not provide specific quantitative revenue expectations for the third quarter. This change is in line with the practices of our largest the shareholder Tencent and is consolidated subsidiaries. However, directionally, we still expect a revenues to continue to grow.

And third quarter, both year over year and quarter over quarter.

Also here to update that we received a nonbinding proposal letter from Tencent yesterday.

Proposing that who yeah and don't enter into a stock for stock merger to be affected pursuant to applicable laws.

As a result of such proposal we are all its subsidiary would acquire each outstanding ordinary share of stone, including ordinary shares is represented by it yes.

Exchange for it to be agreed to number of newly issued class eight ordinary shares of who yeah.

Including ordinary shares represented by yes.

The independent and just interested members of the board well review and evaluate the proposed the transaction.

The board just received a nonbinding proposal letter from Tencent yesterday, and best no decisions have been made with respect to the company's response to the transaction.

With that I wouldn't like to open the call now to your question.

[noise], ladies and gentlemen, we will now begin the question and answer session.

If you wish to ask a question. Please press star one on your telephone and wait for you need to be an hour. If you wish to cancel your request. Please press the pound or hashi.

For the benefits of all participants on today's call. If you wish to ask your question to management in Chinese leaves immediately repeat your question in English to give more people the opportunity to ask question.

Please keep yourself to no more than two questions at a time and you May Press Star. One again, if you have a follow up question. Thank you.

Your first question comes from the line of Thomas Chong of Jefferies. Please ask your question.

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Well friends mitral been bought picking my question.

Congratulations on the strong that's helped me so I hope I've two questions. My first question just about the cooperation with Tencent into second half and and you keep <unk> that can be said a in the next up yet given out so solid progress is made in lifestyle coming at you caught.

And my second question just about it was a truck okay I'm going to demonstrate about the M.B., who end up paying users.

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Okay I translation regarding the cooperation with Tencent actually before attention became our controlling shareholder we have already got the existing dip cooperation with Sam I heard it became the largest shareholder of 10 cents. A collaboration has been just dependent in various aspects.

So as being expanding over the past different amounts.

In terms of terror risk factor offset a collaboration firstly I like to say that Oh, we have already been connecting to 10 cents games and the products aims a a second quarter and that there will be more to calm and connecting with more off campus came as a product in that <unk> is an act of your.

Corridors and secondly are actually who asked last for any content has already been connected a in 10 cents weight in way check in center and keep your mobile games center and the the traffic that we gained from those channels has now become teed up to the report either to donate use and a these.

Traffic from those external Lngs actually got a quarter over quarter growth of 16 in the second quarter from Q1, and certainly in terms of the comedy weighting of the broadcasters <unk> actually we have spent operating with a 10 cents some of 10 cents games to.

<unk> exclusive service Butte cuisine, Tencent against wishes Cod, one click of streaming service just so that were a 10 cents gamers play games. When we think about play again, they can't say Multani lastly, livestream, they're gaining experience through a click of a button and essentially.

They can they will become not worry about patches and Oh, No force rest facts and actually we're also working with Tencent in terms of Oh called invading the E sports toward an inside a in addition, she'll copyright licensing commercialization and optimizing their views.

First we experienced by operating that product features a we are also up and we are also in collaboration and communications with P.G. sports to see if thier anymore as the new product that when you features where new business models can be applied to the east West tournament.

And I'll be technology aside.

We are working with Tencent to drive the development of Big data and the artificial intelligence technology and also a we are trying to connect the two tendency that there's just so that a waste or did I hand that we can optimize viewers personalize the experience.

By personalized recommendations for body to them and lastly, as you have noticed away half I recently launched Robert Clocking in platform can you walk and are currently a it's a game titles that is covered by your was a it's a great support from Tencent.

So these are all their respective Ah cooperation with Tencent and Katherine will take your next question.

A trust second question in terms of user growth and are paying user growth.

As a mr. don't just mentioned along with the strengthening cooperation with Tencent as well as always last month in content, such as broadcasters or third party East was tournament as well as self generated content, we believe that our users.

Paying users will continue to grow in the second half of this year.

Hi, This answers your question and thank you enter next.

Your next question comes from the line.

All of a late January please ask your question.

Oh, Hi, Brian.

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Oh broadcasting rights for the Golf Legend Championship, All Jersey, and they are near term or long term impact our our peoplenet and second delay, it's all about Albert property, the belly to wage Oh, I heard a much better than expected in second quarter can you give us mccotter R&D specific today the churned off.

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Okay I'm not sure halfway him there regarding your question about the competitive landscape, a and relating to quite show and the wantonly actually the two parties have fan doing game like streaming warning on and the recently, we haven't noticed times the half a increase busier than last month and.

Producing and preparing for such a content, but I like to answer your question from tourist factor first wave from the data that we have observed in a monitored I think the impact to the from either cash or billable is quite when it's easy to who yeah and secondly, we offer a motorcycle.

They have a inclination to print to a livestream more focused on the mobile games and after my known we are quite strong in terms of streaming mobile game titles and now we believe our competitive a long page from streaming mobile game.

Hi, This is absolutely, especially in broadcasting RF cans kind of his Kieran elite. So we don't really think the impact is ah that much and about your press release regarding the broadcasting rights for the world's find all of our 2020 League of legends, what do we can say right now and so we're still in active communication.

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Too.

The sublicensing right to have a brick house teams that she is whats requirements, but Ah first way of course, we will like to get this sublicensing rights of Ah has seen world final of 20 to 20 like a legends because it's a very acceleron is was.

Ornaments, but secondly, I like to see them.

From what we have observed a in the data monitoring the new traffic or are they use or where that they use brought by the if we don't gaseous sublicensing right from a world final the impact of what the limited, especially considering that as we have this clothing the preparing.

Marks the self produced a content weathering PGC or a east West tournament, the new users on the D.A. you a those traffic brought by our self generated content, it's already comparable to some of the act we T. The east West requirements. So other kind of course them a we would try I went back to to get the sublicensing.

Right, but we don't got it wasting kids, so still manageable so catcher and we'll take your second question.

Regarding to the margin improvement Oh gross margin improvement is primarily from the savings in optimizing our broadcast or signing fees.

In the second quarter, Oh, we have a cut cost of the broadcasters who have relatively low priced to performance racial both domestically and overseas and thus we have a pretty significant savings from the birth cost her signing fees and in terms of all.

Operating margin improvement that was mainly that was partially due to the operating efficiency improvement and also we have we have received them work on subsidies in the second quarter compared to two though first the quarter Oh this process or questions. Thank you and next.

Yeah.

Your next question comes from the line of you when Jang of Citi. Please ask your question.

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Okay. So translation regarding your first question about the resources Kinsey traffic that we gain from Tencent acts kind of links.

As we have chest attack a who we are twice streaming content is now connected to some of pension schemes and products and as a major difference acts. The experience now you will have ingles external links and whizzing, we as core AD as sad within those core a within those accidentally.

Thanks, those are 10 cents games, where products they interact to interact to feature and the virtual gifting feature will be limited. So the experience. It is not comprehensive there's the only this where our we didn't count we didn't count are the action of links.

On traffic into the replay I mean, you, but we're still in an active communication with relief he'd protracted teams. So tencent I'm, just so that weekend a in reach and diversify the continental assist him with the intention schemes and products and pro.

Finally in future there might be a chance for us to share revenues, a with such related projects at him seen future.

And secondly.

Your question or the competitive landscape if theoretically if hypothetically we didn't consider the commanded says when it's a new competitors new entrants actually we have fan mm set that we haven't seen that previously that mm <unk>.

With the new entrance of those short form video is entering into the game. My streaming is tree, we have been on seeing the new traffic and also the at Marquis size look to say is half of them are growing in.

After the new entrants off the shelf weren't lead is entering to the industry and we actually as we actually are pretty much appreciating that the have been helping us to agile kids the users and I am the first to have.

He is total.

Revenue generated by the game industry is actually the enjoying the highest Ah Ah growth rates that we have seen it has to feel mountains and a this set a us to the conclusion that probably for the analyzed streaming industry. If we don't consider other factors too.

Oh, placing the future of the industry just up by a just a based on the growth of the Kim gaming industry. The future of can watch I mean, it's true it's already approach batches.

In the future and my third point is regarding the East Sports tournament as Oh actually is the popularity of the east West one of them. It seems the industry over the past few years. It actually I have already become a sensational activity among all the gamers and probably also it.

Back to have experienced upset gamers.

So we think with the help of the east, which tournament and Oh. Its popularity. It's also got be beneficial to us at game watching a chip for years.

And also my last one as a regarding the combination asking why streaming content and go to gain a video content and which show we have fame, placing a lot of the average HM So going forward and we I will like to see is that why single user can act.

Finally enjoy a different time and show.

A different dimensions of content consumption on our platform both in game live streaming and in a game videos and the with the quality product with the quality content. The English for for a Ings a video production. We've seen weigh on my has a chance to grow the user base and carry that.

And it into the next to see Suffolk Ralph.

So thank you that's all for the questions. Please move onto the next.

Your next question comes from the line as Alex Smith of China Renaissance. Please ask your question.

Hey, How's it going until a load on writing code Eagle with you sure.

Okay that always had just a woman. So we are kisha, John Neale just don't gosh again, though so it's not just here or what you got Hoshino go talk to hold your I guess, Andrew So we've got a year, what's your shrunk geopolitical shield number closer to home, Florida whole notion, but traditionally I won't give way to hold on one is on the.

So on it or do you want to tell when she just you actually don't you guys have okay. Typical how you glenshee Tricia to what to say Hey, warmer told you. It can yield to non says you know crucial to use your comment about those companies are transitioning your granddaughter should teams here no for the company.

Okay. So sure what's your Carter's wholesale battery Traci appeal.

Yes.

Yeah at home button, you can you.

Oh, Yeah occur, we'll let you can go to work Oh, So that you go to Patrick a feel okay. I think a check the composition of those social you call.

Toshi you could see you know some good.

Okay. That's all.

And that's been talk about will provide more color on call. Although we are work with Tencent more closely on call gaming.

And the potential commercialization model of call gaming going forward.

And also secondly, because on the.

Gain host Sino fee or where does the management suite this call by them to stabilize in the longer term.

Oh, well actually does a you usually get choosing thing isn't good enough father hazardous digital sheet.

We also you listed as Suzanne do you got a woman she wants to go together, you, though but I didn't know Salem easy audio tickets issued a concerning the D younger than one hour mushroom and then go taking here bugging Yoshida Inc., which engines in the syndicated though.

As reaches homes and we're glad to minimum wages are being as she goes up when was the same problem can and wish him well <unk> Hi, Jim I think we always when I saw a minimally cannot show them. What he does that answer sure. So do you guys give a that's through the woman phones or give or take a woman.

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To sustain ahead to amend woman Davy new here and so this is living that is here.

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Board she woman there on the services both of those future.

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That's the number one we hear from youngsters or choose a straight as long enough other managers or took a show she's on who the war well you like <unk> <unk> took a woman houses because you won't be the so no about the phones to my mind, the tickets, which is super being though we'll miss you won't move about Internet just now it's a good yeah.

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Parity tickets, we will Benson took a time she thought that he has to be audio need.

Okay. After translation regarding your first question about the Hock I mean actually a the clock in interest NIS four we out weren't enough when the industry. It's not a very early stage and the who asked mantech and weren't such businesses <unk>. Firstly, we will keep a close eye on the industry in terms of.

Development, and a catching up with millennials trend and secondly, we will want to continuously optimizing a user experience for our call gaming platform and Oh from that and up from where the data that we have seen right now we think.

Massive commercialization or massive monetization is just you know there yet for us we out or for that business and secondly from the data that we have observed to any user behavior.

We think the experience of caulkins half ones is at a basket to be combined with the like streaming experience, which means probably in the future. We will provide more interactive feature to be worse.

Streaming experience by combining the oh by combining the content streaming together with a call gaining a plane.

That's where they call opinion business and regarding Youre, signing bonus trend I'm actually for US we ask business right now the signing bonus fees for the broke hatches is not related to the glossy is that a broadcaster can generate it's more.

Decided by the quality content, one broadcaster temperatures and also by the viewers are they can generate I such as operating matrix as if you use or retention rates, but what if we take a step back and no review your.

Such as channel like kind of like.

Getting me getting the Rockies and signing bonus fees together, we think for the top streamlines the industry. They do.

They are enjoying yeah, I'm, sorry, hi, signing bonus fee and we are actually thinking about so got them to contribute more to the monetization will commercialization of the platform and a.

Probably a and I can't side. A example for you is that aim D E commerce streaming business actually the quality and the top streamer. It's in the industry that they can generates a very good amount of gross things that you can they can contribute.

As a platform. So we think it's a very good examples you apply to the in live streaming and Ah Ah encourage those broadcasters are top Raul Castro to contribute more under 250 more into the commercialization of monetization activity itself the platform.

Thank you for a question we can move onto the next.

Your next question comes from the line of Binnie Wong of HSBC. Please ask your question.

No I somehow consequently, Charles.

I'm doing it should not be willing to national launch as you're aware that didn't quoted and no change until they told me my judgment on Chunky Nonconsumer Convention yeah.

Okay sounds like how many a male top oh no. Other large on show improved three inches sheer were shallow interstitial thinker and chunky and they didn't sure sure as much as well as being the driver throughout if I mean, Oh too sure local woman, Pennsylvania region. So just decide they go user acquisition Polymet sure.

Take a team John Chiminski, Yeah sure sure one since I come onto hooking jono not to go way up and directional actually gets no. Just translate my questions are quickly. So we observe that that all we are all and they used to pass that don't move Oh. This quarter and then also was that all margins is also continuing into.

With so much incremental cost so what are the key drivers behind the strong result, though all without much a good incremental cost and then if you look at the user acquisition strategy. This year do you see HM competition has been rationalizing and bench, so we should be able to see margins.

Strategy continues should be improving.

Thank you management.

I'll answer first the question crush in terms of I mean, you a this strong growth was mainly because in the second quarter because of the pandemic Uh huh.

Pretty much domestically in China has decided and most of the Oh flying Internet cafes has we opened.

As we mentioned in the first the quarter's earnings call in the first the quarter because of the apply internet cafes has mostly being close to dawn. So we have lost or some of the non PC or non mobile and may use in the first quarter I mean, the second quarter.

That part of the users have picked up.

And the in your second question.

For the proposed merger of flat and the ER and the Doe you because we just received the proposal yesterday and the D independent and disinterested in members of the board well review and evaluate the transaction.

So from the the border perspective there.

There is no decision so far and Ah. We we will we will update the investors. If there are significant milestones and there was a decision to be reached.

Thank you.

And the next.

Your next question comes from the line of Wendy Chen of Goldman Sachs. Please ask your question.

[noise] come on I mean I'm asking.

Oh. This is quite simple claim was two cents <unk>.

That doesn't that Oh, that's one count.

Well that's useful.

The contingent my sense is that Oh, two from once again the twice.

Now you mentioned your someone excellent I just want to the interim sample handling equipment they come on.

Awesome them from will take the.

Oh, just kinda, who do have done that the chicken margin profile.

Even if he didn't want to quadruple she would you see.

With that.

I know I think sometimes when the taking my question I just had one quick question on the international expansion Park. Some job one that's been show what is our geographic focus area for the international expansion right now or whether we have any update on the global licensing strategy.

Potential happened when they wouldn't have seen for that Chinese copley to overseas.

Oh, so it's no update Weatherford will have an impact on our margin profile as we have been busted before you actually.

Thanks much.

Although it up with the two they'll know what's the time to junior anchor and culture and then she is here with yeah that was previously quoted anybody to anyone to this without central Jordan.

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I was hoping to listed as a woman's and feeling with other companies old Chechnya shows that you can see them, which endangered who has been on this all diseases. So when we can I sort of on our nuances own phonemes always gradual mentioned anyway.

Yeah.

Good day Lami women's insulin, we went out and you've got down to women can now what is that what I don't see any mads just each other.

Yeah. So allow me to at least some going down that just Wilmington peeling wagers here to firewall school a magic a year will then go sounded joking about analytical for John.

And after transmission actually the overseas business that way ours applying for this year is a little bit that compare ways to what we have played into your Uh Huh 18, and 19 cuisines. It has for two years, what we have been focusing more on as only a mark is.

Gross well entering into 2020, we have thing carefully evaluating the healthiness of C actresses Tim and also after size more on the commercialization and a return on a in last month, so a in deciding which.

Commentary for us to entering days here, we focused a more exploring in more reasonable ROI wishes fly we didn't really a enter United States and also speaking of a India since and we believe the potential.

Revenue in India is quite limits hate as a way did I don't really spend as much money that we didn't really I put a having last night in India. So that's out for the business in those two countries speaking off the countries that we have focused more it's actually more.

Centered in the Southeast Asian countries, and the Latino America, which we've seen kids Oh, great potential in both uses and Monetizations and are taking that together with middle East as those are the areas, yes that we will be a focusing more and then your future.

Especially considering that those countries will have a balance to play between you'll get walls and monetization.

Thats your question can we move on to the.

Okay.

Operator, I think we have Oh, we have it's about time and Ah I like to thank you again for joining our conference call. Today. If you have further questions you can reach the team at IR App, we add all calm and we look forward to speaking with you in the next quarter. Thank you.

Operator, we can conclude the call.

This concludes today's conference call you may now disconnect your lines. Thank you.

[music].

[music].

[music].

Hello, Ladies and gentlemen, thank you for standing by for the 2022nd quarter Earnings Conference call for who we are incorporated at this time all participants are in listen only mode. Today's conference call is being recorded I will now turn to go over Jim is Dana Chang company Investor.

Relations. Please go ahead.

Hello, everyone and welcome to look we ask 2022nd quarter earnings Conference call. The Companys financial and operational results were issued earlier today and are posted on line. You can also revealed the earnings press release by visiting the IR website at <unk> Dot Com erupt play after call will be a village.

People on the IR website and a few hours participants on today's call will be Mr. Owns it don't Chief Executive Officer, if we add enemies, Catherine Lu Chief Financial Officer management will be game was prepared remarks, Canada call will conclude with Q any session before we continue please note that.

Today's discussion will contain forward looking statements under the safe Harbor separately and stuff that you as private Securities Litigation Reform Act of 1995 forward looking statements involve inherent risks and uncertainties as such the Communist results may be materially different from the views expressed a day for the informed.

Nation regarding reason other risks and uncertainties is included in the company's prospectus and other public filings as filed with the U.S. FCC. The company does not assume any obligation to update any forward looking statements except as required under applicable law. Please also note that we.

<unk> earnings press release, and this conference call include discussions of on outdated GAAP financial information as well as all unaudited non-GAAP financial measures, whereas press release contains a reconciliation and I've said on outdated non-GAAP measures to be Chile, I'll now update it most directly comparable GAAP measures.

I will now turn the call over to our C O. Mr. On Jay don't Please go ahead.

Hello, everyone. Thank you all for joining <unk> conference call today.

We are here to the outstanding results calls all core businesses in the second the quota open they.

002 thousand 10 to all total net revenues grew so they fall within the year over year to RMB 2.7 billion continuously CV all up lead us expect fishing.

Our gross profit grew 71% year over year to RMB 575 million.

The demonstrating offset growth and the improvement for all fit to get it.

With respect to tools the user traffic.

Despite the fact that said people in China, Hello loudly that.

The doomed to sell daily work and that school schedule.

We made him to some momentum said, we'd be able to go rings, a pandemic how about that being killed one owns them although anda.

We accomplished a year over year growth Oh, so they borrow center for the mobile M.A.O. Oh, we are like.

Leaching and when they filed palms at 6 million in Q2.

China come up and that people activity.

Moving toward the normal say many offline internet cafes.

Although we opened it supporting.

The bomb to all all of them.

No mobile and males in Q2 as a result, the average Emil Oh, we are locked.

Increased by 17% year over year to 158.5 million in that segment quota.

The presenting on there that additionally, although over 70 million from Q1.

The growth was primarily driven by our dedication to continue oscillating lynching outcomes and offerings.

Well for the improving so content that part of it.

Nick.

Well a lot to she out with view some updates about to the prelim.

Similarly cooperation that we have started.

With Tencent things tend Vincent.

Became a lot of controlling shareholder in April.

We are loved streaming content is not available within a inquiries being then but all within seconds and that Paul.

Which will help has stepped into expanded the pool all real does.

Use of who watched Oh I loved unique content.

Within 10, Finpac games and the products such as a weekend. We can then centre and that can kill mobile game Center, well loved home theater in we are learning lots and males.

Disturbing to all our who we are alive and they will absolutely males, who works for though we all love you mean comes into pharmacies.

So no link has.

Within 10 cents games and the products increased by.

16% to inconel tool from here, what we are also end up or if that's all building. If you do one click gimi services within some of those 10 cents in.

So attractive more broader caso.

With a new so.

Some of it and then they must have some new pay me out late June Yeah gaming a fairness.

Lose that pick a lot, but there and that you're essentially they can offer all the cost us.

In terms all that Youve booked for the month. We are also working together with Tencent, whereas diminishing such as the cooperating useful for them and content.

Terrific exposure for Love, you mean component and the what poker game.

Opportunities as well as <unk>.

No way to all the whole equal you'll notice viewing is found out it's all very useful for them and.

Finally floods. The importantly, we have always been trying to say nibble, who need to ever growing demand all yours.

Well continue to play the lapping and they are spending a lot product.

Offerings for long term growth most recently.

In June we launched Oh, I called Calder gaming platform corridor Yoba offering over four they game titles, so perhaps well maybe that you there okay access for our broader audience to enjoy so all good and Oh long.

Prospects to full yoga is to enable our use of took place as a was off all the cockpit and they enjoy you'll need to impact you some hits balances.

We have all those give them the our efforts will be deal mainly focused on middle live game, we dose in the thing that quota averaging a meal.

We'll watch though videos on our platform includes that by since they said yeah. We are yet to approximately 10 million.

Our business isn't more diversified and the all these efforts will have a fever future opportunities and they mogi <unk>, even stronger positioning that game love Gimi market.

With that.

I will now owns a cool over to allow careful cadthree, whose yahoo insights on our operating metrics that and their financial details concerning please go ahead.

Thank you Mr. Dong and Hello, everyone.

Only mr. Dong remarks, I will start with updates on content enrichment and diversification.

From the broadcasters side, we have kept at the momentum were built during the pandemic period in Q1. The number of average monthly active broadcasters remained at over 800000, representing a 12% year over year increase.

In the second quarter, we've been tested 100 or to third party esports tournament.

Among which the top performance include L. CK spring season, which we have gained three year exclusive broadcasting rights.

As well as L.P.L. spring and summer season.

He L and K.P.L. total viewership for this tournament, which the historical high of over 770 million in the second quarter, representing a 24% year over year growth.

Another key part of our continued commitment.

It's our self produced the comp.

In the second quarter, we organize the 34 esports tournament and entertainment shows.

Generating a total viewership of 112 million, representing a 36% year over year growth.

During the first half of this year the scale of new users that's what attracted to our platform. My this self generated comp.

Was comparable to third party E sports on them and we broadcasted.

I'm on the east for tournament that we produced robust neat crop season, six and then a fifth we are mobile game arena, where the top one.

Scale of their viewers under the new users they brought to our platform is comparable to some asked rated third party official esports tournament.

On the entertainment shows from we produce a series of original PGC shows.

On our path to content diversification in this quarter for instance, who produce attitude.

And we Alipay show discoveries that indicate stories of the gain livestream industry.

Expert.

A music talent show that attracted great enthusiasm and participation among all broadcasters.

And the high screen, a news show focused on E sports broadcasters and professional weeks.

Thanks to our dedicated efforts to drive quality content offerings.

In the second quarter.

Average mobile and me use and I mean, you've reached record high of 75.6 million and 168.5 million respectively.

At the same time, I woke well I've a p. piece next month retention rate still remained over 70% in the second quarter.

Eli was the continued growth of our users the paying users both where like also increased by 20 some percent Europe with year to 6.2 million in the second quarter.

We live streaming revenue per paying user fulfil allied also increased year over year, we continued to unlock the monetization potential of our core user assets by effective operations of activities.

Such as we are fast party the online event, we organized in June.

As we continue to grow globally, we reached over 27 million m- use for our overseas business.

The second quarter.

The growth was partially driven by increased internet usage as people were confined at home during the call that 19 outbreak similar to what we have experienced domestically in the first quarter.

Now, let me walk you through our financial highlights.

In a second quarter, our total net revenues grew by 34% year over year to RMB 2.7 billion. This is the ninth consecutive quarter that we exceeded our expectations since our IPO.

One thing I would like to point out here is that our game companion business revenue is booked after deducting the revenue sharing fees for the broadcasters well our virtual 15 revenue. This book the before deducting the revenue sharing fees for broadcasters.

We started the income companion business in the second quarter of last year. So the difference in accounting treatment previously had minimal impact between revenue growth in recent quarters. It has grown more sizeable in the second quarter. The gross billings generated from our businesses.

Actually grew faster than our recognized net revenues.

I would like to me revenues increased by 34% year over year to around RMB 2.6 billion in the second quarter. The girls was primarily due to the increase the number of paying users and the increase in revenue per paying user.

Most of which have expended year over year end quarter over quarter.

Advertising and other revenues increased by 49% year over year to RMB 132 million in the second quarter.

I'm really driven by the increasing and diversifying number of advertisers.

There's a slight decrease in advertising revenue from Q1, mainly because of the higher user base set by called with 19 for gaming advertisers in the first quarter.

Oh profitability continued between crude in the second quarter as we benefited from the savings in optimizing our broadcaster signing fees.

While we continue improving operational efficiencies.

Our non-GAAP gross margin improved or to 21.9% compared with 20.3% the first quarter and 16.9% the second quarter last year.

Our non-GAAP operating margin improved to 12.1% compared with 9.4% the first a quarter and the 5.8% in the second quarter 2019.

Our non-GAAP net margin improved to 13%.

Compared with 10.9%.

The first quarter [noise].

And 8.5% in the second quarter 2019.

Now, let me move onto our financial details with year over year growth rates.

Cost of revenues increased by 27% to RMB 2.1 billion for the second quarter.

Primarily attributable to the increase in revenue sharing fees and content costs.

Bandwidth costs.

And personnel related costs.

Revenue sharing fees and content costs increased by 24% to RMB 1.7 billion or the second quarter, primarily due to the increase in revenue sharing fees relation to higher lives FIMI revenues.

And increased the spending in content creators.

He sports and self produced the content.

Year over year increase was partially offset by benefits from economies of scale.

And with cost increased by 35% to RMB 265 million for the second quarter, primarily due to an increase in bandwidth usage of the result of our larger user base and enhance the live streaming video quality.

This was partially offset by improved efficiency in bandwidth utilization through continue technology enhancement efforts.

Gross profit increased by 71% to RMB 575 million for the second quarter and gross margin increased to 21.3% for the second quarter.

Research and development expenses increased by 71% to RMB 180 million for the second quarter, mainly attributable to increased the personnel related expenses.

Selling and marketing expenses decreased by 4% to RMB 115 million for the second quarter. The decrease was primarily attributable to lower spending in marketing activities due to the impact of called the 19 and partially offset by the increase the personnel related.

<unk> expenses.

General and administrative expenses increased by 61% to RMB 120 million for the second quarter, mainly due to that accelerated share based compensation expenses recognized in April 2020 in the event of a change of control.

In terms of the total share based compensation expenses. We also have a recent updates to share with you in April 2020 recognized RMB 57.7 million of share based compensation expenses in our cost of revenues and operating expenses.

From the accelerated vesting schedule, a full yes pre IPO options in the event of a change of control plus went to our 2017 cheer incentive plan an option agreement.

Operating income increased up by 190, 98% to RMB 200, or 1 million for the second quarter and operating margin increased to 7.5% in the second quarter.

Non-GAAP operating income, which exclude share based compensation expenses increased by 180% to RMB 326 million for the second quarter.

Non-GAAP operating margin increased the to 12.1% for the second quarter.

Income tax expenses increased by 137% to RMB 51 million for the second quarter.

Net income attributable to we are inc. increased the by 86% to RMB 227 million in the second quarter.

Non-GAAP net income attributable to we I think which excludes share based compensation expenses increased by 106% to arm b.

351 million for the second quarter.

Diluted net income per adss.

RMB zero point 96 for the second quarter and non-GAAP diluted net income per ATM was RMB 1.49.

As of June Thirtyth, 2020, we had cash and cash equivalents short term deposits and short term investments of RMB 10.7 billion compared with RMB 10 points, we've done it as of March 31st 2020.

The increase was primarily due to net cash provided by operating activities of RMB 512 minutes for the second quarter.

That concludes the review of our second financial second quarter financial.

As you May have noticed we did not provide specific quantitative revenue expectation for the third quarter. This change is in line with the practices of our largest officials are tencent and he is consolidated subsidiaries. However, directionally, we still expect a revenues to continue to grow.

And third quarter, both year over year and quarter over quarter.

Also here to update that we received a nonbinding proposal letter from Tencent yesterday.

Proposing that who yeah and building enter into a stock for stock merger to be affected pursuant to applicable law.

As a result of such proposal.

Yeah, well its subsidiary would acquire each outstanding ordinary share of stone, including ordinary shares is represented by 80, yes.

Exchange for it to be agreed to number of newly issued class eight ordinary shares of four yeah.

Including ordinary shares represent it like India.

The independent and this interested members of the board well review and evaluate the proposed the transaction.

Board just received that nonbinding proposal letter from Tencent yesterday, and best no decisions have been made with respect to the company's response.

So the transaction.

With that I would like to open the call now to your question.

[noise], ladies and gentlemen, we will now be getting the question answer session. If you wish to ask the question. Please press star one on your telephone and wait for you need to be an hour.

If you wish to cancel your request please press about our hashi.

For the benefits of all participants on today's call. If you wish to ask your question to management in Chinese lease immediately repeat your question in English.

Give more people the opportunity to ask question.

Please keep yourself you know more than two questions at a time and you May Press Star one again, if you have a follow up questions. Thank you.

Your first question comes from the line of Thomas Chong of Jefferies. Please ask your question.

Well, John Paul I'll say somebody told me is there's all well if you're going see sometimes into yet.

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Congratulations on the strong that's helped me so I hope I've two questions. My first question just about the cooperation with Tencent I'm in the second half and any <unk> that can be said in the lets up you'd yet given out so solid progress is made in lifestyle coming at you caught.

And my second question just about it was a truck all can management share about me, who end up paying users.

Oh look at either pick up hop. Thank you.

Holder or whatever.

Are you going here.

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Second daughter, there goes all the ticket tender so generous Ah well motion using that as you know Dupont negotiating there the timing and generally is usable in there.

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Patients all dogs, the booking and use he gave are they getting them was.

Okay I translation regarding the cooperation with Tencent actually before attention became our controlling shareholder we have already got the existing dip operationally sand I heard it became the largest shareholder of tens and cooperation happening just dependent in various aspects.

So as being expanding over the past a few months in terms of their raise back to offset a collaboration firstly I like to say that Oh, we have already been connecting to 10 cents games and the product and Ah Ah second quarter, and there will be more to calm weakened.

Acting with more off campus came as a product in that and England Act. If your quarters and secondly are actually who asked last for any content has already been connect paid a in 10 cents weight in way check in center and keep your mobile games center and the the traffic that we gained from those channels has now become team.

Our tools are reporting that children I might use and a these traffic from those external lngs actually got a quarter over quarter gross assets, excluding the second quarter from Q1, and certainly in terms of the Colleen leading up to broadcasters and actually we have.

Thing I've already ending with a 10 cents some of 10 cents games to test the exclusive service Butte within <unk> against wishes Cod Wikileak of streaming service. So that were antecedents gamers quake in <unk>, we think a play again, they can't say mountaineer fleet.

Livestream, they're gaining experience through a click of a button and essentially they can they will become not worry about catchers and Oh No force rest facts and actually we're also working with Tencent in terms of Oh cutting ratings. They eat sports wondering inside a in addition show called.

Right licensing commercialization and optimizing the worst experienced by operating that product features a we are also up and we are also incorporation and communications with P.G. sports to see if there any more often.

New product that when you features where new business models can be applied to the east West tournament and I'll be technology aside.

We are working with Tencent to drive the development of Big data and the artificial intelligence technology and also a we are trying to connect it to tendency that there's just so that a waste or did I had that way can optimize viewers personalizing the experience.

By personalized recommendations for body to then lastly, as you have no pissed away House I recently launched our clogging platform called <unk> and the current only eight or the game titles that is covered by your while a it's a great support from 10 Stan.

So these are all their respective Ah cooperation with Tencent Katherine will take your next question.

That's true a second question in terms of user growth and paying user growth as Mr. Don't just mentioned along with the strengthening cooperation with Tencent as well as always last month in content, such as broadcasters or third party East was tournament as well.

A self generated content, we believe that our users and paying users will continue to grow in the second half of this year.

Oh this answers your question and thank you and next.

Your next question comes from the line.

All of a late January please ask your question.

Oh, Hi, Bonnie.

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Oh uptake the wheel on their competition with shopped with your player to actually like quite sure which are now so certain oh games through any related Oh numbers on the Billy beauty, which have Oh broadcasting rights for the Golf Legend Championship, all Juicy and they are near term or long term impact our or.

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Okay, especially halfway hand, there regarding your question about the competitive landscape.

Relating to quite show and don't want the only actually the two parties have fan doing game like streaming for law and the recently, we haven't noticed on the half a increase do they aren't in last month and producing and preparing for such a content, but I like to answer your question from tourist packs a first way from.

The data that we have observed in a monitored I think the impact to the from either cash or billable ask piling, it's easy to yeah and secondly, we also know kind of how they have a inclination to print to a livestream more oh focused on the mobile games.

And I am I not home way are quite strong in terms of streaming mobile game titles and now we believe our competitive along page from streaming mobile game titles is absolutely, especially in broadcasting RF cans and his key went away. So we don't really think the impact.

He is a that much and about half pattern regarding the broadcasting rights for the world's find all of our 2020 League of legends what do we can't say right now is that where steel in active communications with such parties to to fight to.

Got the Sublicensing right to have a brick house teams that she is whats tournament, but Ah first way of course, we will like to get this sublicensing right of Ah has teen World final of 20 to 20 League of legends because it's a very acceleron is what.

One of them and secondly, I like to see them.

From what we have observed a in the data monitoring.

Neil traffic or are they use or where that the youth brought by the if we don't gaseous sublicensing right from a world final the impact of what the limited, especially considering that as we have this clothing. The prepared remarks, the self produced a content weathering PGC or a east.

Good morning, and the new users on the D.A. you a those traffic brought by our self generated content, it's already comparable to some of the act really T. The east West one of them and the other kind of course them. A we would try I went back to to get the Sublicensing wise, but we don't get it we think it says still manageable.

Cash and we'll take your second question.

Regarding to the margin improvement Oh gross margin improvement is primarily from D. A savings in optimizing our broadcast or signing fees in the second quarter, Oh, we have a cut cost of the broadcasters who have relatively low price.

Nice to performance racial both domestically and overseas and thus we have a pretty significant savings from the broadcast or signing fees.

And in terms of operating margin improvement that was mainly that was partially due to the operating efficiency improvement and also we have we have received them work on subsidies in the second quarter compare to chewed up first the quarter.

Hi. This is a question thank you and Max.

Your next question comes from the line of you when Jang of Citi. Please ask your question.

Hey, According to what you'll see us in order to what could be yes, or no rentable infiltrate shots on Lincoln country Cotwo. So.

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Oh, it's insane shopper spokesman management for taking my question.

The first question is what content collaboration Oh, you've got side.

You mentioned that would help us out with game, which which you can send hurdle also can sense, what we're trying not to cool <unk> Award reported to you. So any plans to convert this newsource into our absolute so and also in terms because it's a behavior to is there any difference about this too is you got groups are the most single constrained.

Oh, Hi, Patrick.

Patrick what the fourth do not consider competition factor hooked away view, it's up to so what else can that's true streaming for plus I'll note that you have told you. So based on your business model for true.

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Okay. So translation regarding your first question about the resources Kinsey traffic that we gain from Tencent acts kind of links.

As we have chest attack off when we asked why streaming content is now connected to some of pension schemes and products and as a major difference acts. The experience now you will have interest X. I don't know links and whizzing, we adds core AD as sad when do those core a within those accidentally.

Thanks, those are 10 cents games, where product they interact its interactive features and the virtual gifting feature will be limited. So the experience. It is not comprehensive there's the only this where our we didn't comment we didn't cause all the action links.

On traffic into the replay at you, but we're still in an active communication with related projects. It seems so said Tencent I'm just so that we can reach and diversify the content acquisition 10, with intense and schemes and products and pro.

Similarly in future there might be a chance for us to share revenues, a with such related project that hadn't seen future.

And secondly.

Your question or the competitive landscape is theoretically if hypothetically we didn't consider the commanded says when it's a new competitors new entrant actually we have thin set that we haven't seen that previously that Uh huh.

With the new entrance of those short form video is entering into the game. My streaming is tree, we have seen on things and you know a traffic and also the at Marquis size look to say, it's half and a growing in after the new entrants off the shelf weren't lead is entering to the in it.

Story, and we actually.

We actually are very much appreciating that the half being helping us to agile kids the users and aim the first to have the total.

Revenue generated by the game industry is actually the Dri is the highest Ah Ah growth rates that we have seen it has to feel moms and a this sad as to the conclusions that probably for that analyze training industry. If we don't consider other factors too.

Oh, please same the future of the industry Jetstep by adjust up based on the growth of the Kim gaming industry. The future of can watch I mean, it's true it's already prospectus.

In the future and my third point is regarding the east sports tournament that as Oh, I suppose the popularity of the east West one of them. It seems the industry over the past few years. It actually I have already become a sensational activity among all the gamers and probably also in.

Back to have experience of that gamers.

So we think with to help us to east, which tournament and its popularity. It's also got be beneficial to us as Gavin Weiss remain a chip for years.

And also my last one as a regarding the combination asking why streaming content and get gain a video content and which show we have fame, placing a lotta afterwards and so.

So going forward and we I will like to see it that why single user can't actually enjoy the friends I might show up at a different time actions have content consumption on our platform. Both in game live streaming and in a game videos and we see it quality product a with the quality car.

Intend to English where for a in the video production, we same way out and I have said chance to grow the user base and a carry that ends it into the next defeats affect gross.

So thank you that's all for the questions. Please move onto the next.

[noise]. Your next question comes from the line as Alex Smith of China Renaissance. Please ask your question.

Hey, How's it going until.

Thank you. So can you go with you sure.

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Sure. So what's your Carter's wholesale but should try to your meal.

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Yes.

Okay. That's all good that's been talk about will provide more color on call. Although we work with Tencent more closely what I'll call gaming.

And the potential commercialization model of call gaming going forward.

And also separately because on the.

Being host Sino fee or where does the management suite this call by them to stabilize in the longer term.

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Okay. After translation regarding your first question about the Hawk I mean actually a the clock in interest NIS four we out weren't enough when the industry. It's not a learning early stage and the who asked mantech and weren't such businesses <unk>. Firstly, we will keep a close eye on the energy intensive.

Oh development, and a catching up with millennials trends and secondly, we will like to continuously optimizing.

User experience for our call gaming platform and Oh from that I end up from was it didn't have that we have seen right. Now we think massive commercialization warm massive monetization is just you know there yet for us we out what for that.

ER business and Ah secondly from the data that we have observed an eight user behavior.

We think the experience of caulkins half ones is at its best to be combined with the life streaming experience.

Which means probably in the future we will provide more interactive feature to be whereas a streaming experience by combining the are up by combining the content streaming together with a talking a plane.

That's where they talk any business and regarding your on signing bonus trend I'm actually for US we ask business right now signing bonus fees for the broke hatches is not related to that Rossi is that a pop culture can generate it's more.

Decided by the quality content, one broadcaster temperatures and also by the viewers are they can generate I such as operating matrix as if you use or retention rates, but what if we take a step back and no review your.

Such as channel like Uh Huh light.

Many of the getting the Rockies and signing bonus fits together we think.

For the top streamlines the industry. They do they are enjoying a oh, sorry, hi, signing bonus fee and we are actually thinking about so got them to contribute more to the monetization will commercialization of the platform and Ah.

Probably a and I can't side. A example for you is that aim D E commerce streaming business actually the quality and the top streamer. It's in the industry. They can generates a very good amounting to us gross things that they can they can contribute to the plan.

If one so we think it's a very good examples you apply to the game live streaming and Ah Ah encourage those broadcasters a top rock has shipped to contribute more under 250 more into the commercialization of monetization activities after platform.

Thank you for a question we can move onto the next.

Your next question comes from the line of Binnie Wong of HSBC. Please ask your question.

No I somehow consequently, China Abraham from doing that you're not feel international once you're sure well that's a little quoted and immunology, we chose to go not yet judgment on chunky Nonconsumer component yes.

Okay. So much that woman email top <unk> now with a larger high show improved stream to share more shallow interstitial thinker and chunky and they were some shares you might you want us reaching the driver throughout you if I mean, Oh too sure local woman, California region. So just decide they can use acquisitions home it should.

Take a team don't chance yeah sure sure <unk> since I come onto hooking jono not to go way up and directional actually get no just translate my questions I quickly. So we observe that that off we are a and they used to pass that though you. All this quarter and then also was that all march into social computing.

With so much incremental cost so what are the key drivers behind the strong music, though all without much a good incremental cost and then if you look at the user acquisition strategy. This year do you see HM competition has national line shape and form so we should be able to see margins.

Trajectory continues should be improving our I think your management.

I will answer first the question crush in terms of I mean, you a this strong growth was mainly because in the second quarter because of the pandemic.

Has pretty much domestically in China has served decided and most of the offline Internet cafes has we opened.

As we mentioned in the first the quarter's earnings call in the first the quarter because of the apply internet cafes has mostly being close to dawn. So we have lost or some of the non PC or non mobile and may use in the first quarter and in the second quarter.

That part of the users have picked up a and the in your second question.

For the proposed merger of flat and the an adult.

Because we just received the proposal yesterday and D independent and disinterested in members of the board well review and evaluate the transaction.

So from the the border perspective, there there is no decision.

So far and Ah we Ah we will we will update the investors. If there are significant milestones and there was a decision to be rich.

Thank you.

And the next.

Your next question comes from the line of Wendy Chen of Goldman Sachs. Please ask your question.

[noise] hangs on long I mean, I'm asking when that happens on its own isn't quite a wonderful claim settlement to send <unk> you don't feel that doesn't that form your own Oh, that's one count.

Well this is not a trend through the contingent my sense is that put onto for must be able to have begun implementing future someone excellent.

In terms, how common equipment this month out in the <unk>.

Yeah, I send them home will take the.

Okay now hold your clinical do it sounds like the chicken margin profile.

Even if you didn't want to quadruple mcclatchy, which issue.

With that.

I know I think sometimes when the taking my question I just had one quick question on the international expansion hard some job. One then that's when show what is our geographic focus area for the international expansion right now or whether we have any update on the global licensing strategy.

Potential happened when they wouldn't have seen for that Chinese hopefully the overseas.

So it's desktop pay weapons are websites and pack on our margin profile that we have been bested before you can measure.

Thanks very much.

Although it up with others.

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Yeah.

Good day Lament women's until then we will actually be on documents and then what is that what I don't see any much each other.

Yeah. So allow me to really some going down that just Wilmington, peeling wagers here to firewall school, a magic a year, we negotiated if you're talking about them.

And I'm not trying to question actually the overseas business that way ours applying for this year is a little bit that compare way. So what we have played it either your Uh Huh 18, and 19 cuisines. It has for two years, what we have been focusing more and the only.

Mark is nice gross but entering into 2020, we have thing carefully evaluating the healthiness now see actresses Tim and also after sites more on the commercialization and a return on a in last month, So a inc.

Deciding which country for us to entering this year wasteful his to more exploring a more reasonable ROI wishes fly we didn't really a enter United States and also speaking of.

Yeah. Since you know we believe the potential revenue in India is quite limited hate us away. They don't always been much money.

We do not really I put a having less main India. So all that stuff for the business in those two countries speaking off the country's how we have focused more it's actually more centered in the southeast Asian countries handle Latino America, which we think he is oh great.

Potential in both uses and Monetizations and are taking that together with middle East as those are the areas, yes that we will be a focusing more in the near future, especially considering that those countries will have a balance to play between you look long.

And monetization.

Can we move on to that.

Okay.

Operator, I think we have a we have it's about time and Ah I will like to thinking again for joining our conference call. Today. If you have further questions you can reach the team at IR App, we add all calm and we look forward to speaking with you in the next quarter. Thank you.

Operator, we can conclude the call.

This concludes today's conference call you may now disconnect your lines. Thank you.