Q2 2019 Earnings Call

[laughter] friends over here first [laughter] asking yu. Thank you. Please go ahead.

Thanks, [laughter] welcome to Phoenix, New media second quarter 2000, Nike Inc. earnings Conference call I'm joined by our Chief Executive Officer, Mr., Sean ill and Chief Financial Officer.

[noise] onto this whole month to month why dogs.

Even though I know from Doc Okay a session.

The second quarter 2019, Fisher without like cost of this conference call all available on our website at <unk> Dot iPhone Dot com a replay of the coal will be available on the website you know a few hours before we continue I would like to do before.

Our commitment towards computing business evolution.

Oh I poured constant recommendation complaint we season editorial tuition has consistently delivered highly engaging clean coal as well as optimal user experience.

Although our evolution as a new media company is by no means to me that we have been able to accomplish meaningful purpose.

There is a small steps during the quarter, we continuously work towards refining all told and production capabilities.

Augmenting our premium brand equity.

Danny <unk> innovative mobilization systems.

Furthermore, we expanded our new initiative you lifestyle verticals.

There's two more promising future business opportunities as a result, <unk> efforts, our total revenue surged 38.7% sequentially.

Oh, we exceeded our own guidance.

In regards to Aiful key operating metrics football selection use that.

Have steadily increased as a result, <unk> integration and all that.

Editorial expertise.

Such integration has been effectively <unk> constant quality optimize our distribution efficiency increase all you'll just because.

In addition, we have I phones use the interface by constantly refining is nothing page design feature page layout.

Typically.

Iceland user retention rate has improved gradually.

Judging from our steadily improving operating metrics on positive user feedback I leveraging our unique accommodations.

Advanced software offers them with professional editorial judgment, what confidence that not only all.

User traffic will flourish, but also our revenue will grow consistently over the next few years step by step we're laying a solid foundation for diversifying our service offerings on the monetizing of our premium costs.

[noise] for advertisers.

We have done it.

Advertising humans, we modify our advertiser page injuries.

Refining outcome.

On pain.

Optimization these improvements along with the launch of additional news columns, such a 24 hour news.

Have further improved our bailey inventory fuel rate advertisers continuously attractive to all capital Bob the basis rents.

To capitalize on <unk> equity ongoing user traffic, we continue to argument our brand advertising solution by organizing high profile running events. For example in June we co hosted the 2019, China liquor industry summit with multi.

Livestream event.

Expert discussions on the healthy development of Chinas weaker industry on commercial potential Chinese speaker attracted 3.3 million views Oh live streaming channels.

Well thought life.

Yeah addition, we worked extensively to localize our media resources in 21 different local markets to expand our breath awareness across China.

Through our partnership with local news media, we step operation was locally customize our advertising solutions to local demands Taylor a cousin to local customers.

Our localization strategy combined with already which handle initiatives has helped us further abuse out of breath equity and generate meaningful girls during the quarter, although at least in the sector revenue achieved 17% year over year gross.

We also continued to deliver a wide range of inflammation called you lifestyle related categories, such as real estate food, especially during the period.

Yeah real estate vertical several events during the quarter demonstrated a monetization potential.

We organize the 29 he national campaign, she ULE and brought together industry experts real estate professionals on the University student opinion leaders to discuss coming into developed on the facility.

Crazy competitors competitions.

This campaign attracted more than 2 million viewers a bolus all we need it comes on other third party need a partner.

Steps during the campaign, we lifted over 1000 real estate properties all event page on signed contracts was over.

200 advertisers. We're also co hosted the Golden Secada Cannes International Creative Festival, the first ever festival for real estate, the creativity of the national hub.

We signed over 50 contracts with advertisers as a result, once again, demonstrating the monetization potential of our lifestyle verticals.

Our real estate vertical has a good track record of over 7% revenue pick up in the past five years, we're confident that we will maintain this blistering rolls momentum throughout the course of this year.

Our fashion vertical.

Covers all of our user fashion leads and has become one of the largest and most comprehensive health and category well ever to capitalize all fashion verticals rising popularity.

Exploring the implementation of innovative ecommerce monetization models. For example, we recently launched E Commerce channel with.

Influential pop culture icons to jointly sell celebrity endorsed spectrum brands.

The plan to simultaneously market and promote these fashion brands suppose all I can channels on others third party platforms.

In the coming quarter.

Well online reading sector, we continue to acquire more original I'd be comfortable in order to reinforce our closed loop IP ecosystem, notably we leverage our proprietary catalog of literature that licensing few comics.

Exceedingly pleased with how those performance to date.

I believe that he is on track to meet our.

Totally agreed upon valuation adjustment mechanism.

Oh forgive me front were progressing towards the launch of golf later.

She was shelf placement.

The highly anticipated game produced by our subsidiary mutual.

During the quarter mutual secure partnership agreements with Dean I think 10 don't switch to sale and marketing Gulf layers on both platforms. Currently golf player is already listed on steam on there will be a liberal available for purchase.

Subsequent to receive government approval.

Gulf layer has attracted wise Brad game recognition.

Seeding a score of 9.6 out of 10 in the Chinese game community Pat Pat you. In fact 630000 registered users to attempt to have reserved again, indicating the excitement I support the title.

Finally, I will share an update on July 20, Threerd, we enter into a supplement agreement with the proposed fighters. The total purchase price would remain unchanged.

At the U.S. dollar 448 million.

We will now sell 74% equity stake instead of 32%.

As a result were still generating a significant return of nearly six times.

It was all foreign exchange control it on other uncertainty still exists in the market. We have signed the supplement agreement to Bose hatched against such whatever reasons on the quarter and to better protect accompany a shareholder interests as much as possible.

[noise].

Going forward the policies that we see from the sales of media will be allocate 12.

Development of smart algorithms production of in house IP content expansion into lifestyle verticals on a cash injection will allow us to reward our supportive shareholders.

In the form of dividends.

In summary, we remain committed to providing our users with authentic professional and premium content, our stimulus integrations on AI power recommendation engine with refined editorial duration, our rich library of original and proprietary content and our expanding gross initiatives should help to increase our brand value built our new media business and foster a healthier news community.

Such value in term, we're also bolstered our relationships with advertisers upgrade we win partnerships ultimately, resulting long lasting value for our shareholders with that I will turn the call over to our CFO pedicle for financial update on the quarter.

Thank you Hassan.

And thank you all for joining our conference call today.

I will turn into revenue in 2019, Q2 were RMB 295.1 million.

Representing an increase of 8.6%.

From RMB 363.9 million cars.

The consolidation of revenues of RMB $49.2 million in the second quarter of 2019 from Con too.

And the consolidated revenues of RMB 84.6 million from temple, starting from April 1st 2019.

The company's net advertising revenues from traditional business decreased by 28.5% due to the macroeconomic uncertainty and increased competition.

Secondly, I will provide details on our revenue for the second quarter of 2019.

Consolidated net advertising revenues for the second quarter of 2019.

Were RMB $324.8 million.

Representing an increase of 2.3%.

In the same period last year.

The increase was primarily attributable to the consolidation of advertising revenues from PM ball.

However, the company's net advertising revenues from traditional business declined due to the.

Above stated reason.

Paid services revenues for the second quarter of 2019 increased by 15.1%.

Revenues from pay content for the second quarter of 2019 increased by 126.7%.

Mainly due to the consolidation of card too.

Revenues from games for the second quarter.

Or RMB 2.6 million.

Representing a decrease of 34.7%.

Revenues from NV EPS for the second quarter were RMB 6.7 million, representing a decrease of 16%.

Revenues from others.

For the same quarter of 2019 were 7 million, representing an increase of 513.4%.

Which was mainly caused by the increase in revenues from E Commerce and online real estate related services.

non-GAAP gross profit for the second quarter of 2019 was RMB 212 chameleon.

Compared with 230.2 million in the same period last year.

non-GAAP gross margin for the second quarter was 53.7%.

Decreased from 63.3%.

It was mainly due to a combined effect of decrease in gross margin of the company's traditional advertising business.

And the margin contributions from Tim ball and Todd.

non-GAAP content and operational costs as a percentage of total revenue was 39.1%.

As compared to 29.8% in the same period last year.

It was mainly due to the consolidation of content and operational costs of Timbar and cattle.

And due to an increase in IP production costs.

Revenue sharing fees as a percentage of total revenue.

Was 3.5% as compared to 3.1% last year.

Bandwidth costs as a percentage of revenue was.

Same as last year.

non-GAAP operating non-GAAP operating expenses for the same quarter of ignite team.

Our MB $286.8 million.

non-GAAP operating loss for the second quarter.

RMB 74.8 million.

non-GAAP operating margin.

For the second quarter was negative 18.9%.

Net loss attributable to iPhone for the second quarter.

Of 2019.

RMB $70.1 million.

As compared to net income.

Oh RMB $49.2 million in the same period last year.

non-GAAP net loss attributable to iPhone for the second quarter of 2019 was RMB 66.4 million.

non-GAAP net loss per diluted adss for the second quarter was RMB zero upon 91.

In terms of balance sheet as of June Thirtyth 2019, the companys cash and cash equivalents term deposits short term investments.

And restricted cash were RMB 1.691 on 69 billion.

All apart.

Less dollar $245.8 million.

Which included RMB 251.6 million from Todd do and RMB Stapled 3 million from.

[noise] car doors.

Finally, I'd like to provide our business outlook for the third quarter of 2019.

We are forecasting total revenues to be between RMB $373.4 million, and 393.4 million, representing an increase of 13.4% to 19.5% year over year.

For net advertising revenues, we are forecasting between RMB $312 million and RMB 227 million.

Representing an increase of 10.9% to 60.2% year over year.

For paid service revenues, we are forecasting between RMB 61.4 million and 66.4 million.

Representing an increase of 28.3% to 38.7%.

Half of it.

2019 has gone by.

The macroeconomics is not getting any better and the contents are being further regulated torsten next half off 2019.

Thanks to our diverse diversification strategy in Tadawul and Tim ball.

That strong growth in second quarter has driven to the increase of our total consolidated revenue to about 9%.

We are confident that our total consolidated revenue will be increased by around 20% in full year Oftwenty 19.

In terms of bottom line, we are aiming to breaking even in the next couple of years by implementing.

Very tight cost effective structure.

This concludes the prepared portion of our call. We are now ready for questions. Operator. Please go ahead.

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 weight training to be announced if you wish to cancel your request. Please press the pound or hash key.

Once again, if you wish to ask a question you May press star one on your telephone and wait for your name to be announced.

Your first question comes from the line of Frank Chen from Macquarie. Please ask your question.

Good morning, Sean is all that.

Okay. Thank you for taking my question.

In the prepared remarks that you reaffirmed that youre targeting 20% revenue growth for this year. However, given youre through the third quarter guidance, you told me that implies.

In past.

Mid teens revenue growth for the third quarter on the whole shift towards certain costs I think about fourth quarter revenue growth to help you achieve the four year guide us on the.

And my third question is on the your self cross it from you Dan disposal can you update us on the timeline of the deferred payment due for Doe arrangement on the also do you have.

Oh sure buybacks given the current work share price performance.

Oh. Thank you that's all my question.

Thank you Frank I will take the first question and the second then third question will be answered by song.

For the full year off 17, 19, we are expecting a growth of around 20%.

The cost that you know in general our first quarter is.

January two weakest quarter, and we are seeing the improvement starting from second quarter third quarter and fourth quarter and during the fourth quarter. We are expecting a strong both because most all IP, we will be happening during the fourth quarter.

That's why the fourth quarter will be a very strong a strong product.

Yes, and as a result, we are expecting a growth of around 20% during the four year because of cost that that's being the also being the same case fault hotdogs and temple because for traditional advertising business fourth quarter generally is just wrong us.

Quota. This is also the case for 10 ball yeah that that's why we are expecting.

A growth of around 20%.

For the full year of 2019.

Okay. Thanks.

This is Sean yes.

Yeah. This is Sean I will I will address your the falling through investors looking forward into 2020 I think these by the Macroenvironment uncertainties on the current state of the industry. As a result of an analyst report efforts improving our news apps, we are actually seeing steady improvement operating metrics and positive user feedback.

We are confident I think the trend.

We will continue by leveraging the blistering growth trend via our consolidation of talk to an online real estate.

I think no only our user traffic will flourish, but those all revenue will continue to grow out to around 20% year over year. So basically the trend will remain the same.

At least 20% year over year overall revenue growth in the coming.

Two to three years.

So my question is about the break even point.

Oh, we are reviewing our cost structure and making sure that our core business is going to be profitable, although we may not be able to break even in the short run.

Due to our increased investment in new business.

But in the short run due to our increased investment in new business, but we are confident that we'll be able to narrow loss by next year.

Significantly by implementing effective cost control initiatives.

Eventually breakeven Oh, you next two years.

As we refine our production process for premium content improved the effectiveness of our advertisements.

On leverage the foundation, we have laid to monetize vertical channels and develop new business initiatives.

We're confident that our revenue growth will exceed this year's level.

Over the next few years.

Yes. So the question is about the.

Dividends.

[noise], Yes, I think thats for the dividend, but for the use of proceeds.

Our last call we mentioned our plan to set aside 15, 25% for potential special dividend payments.

Roughly 25% to 75% for investment you called them verticals.

To accelerate our organic gross on general working capital on 40% to 60% for strategic investments.

However, due to the delayed closing of the deal.

And in order to reward our shareholders for their continued support and patients Oh, no I want to announce that we are planning or thinking about raising the dividend payout ratio.

Two.

Between 25% to 50%.

Oh of course, we'll continue to consult with our board and shareholders to see what is the exact.

Payout ratio.

So that we can balancing a we can balance.

We can make a balance between rewarding our supportive shareholders on the.

We're continuing to make strategic investments.

Furthermore, I will also we will also consider a partial payment.

Once we have secured the rest of the.

15 minutes deposits.

Well, they're committed to sharing the return on investment we saw investors on shareholders in order to strike a balance well also focus.

Finding the optimal way to utilize our capital to bolster operations.

We will be sure to update investors will receive but for the cash deposits of Usone dollar 50 minutes, a post approval by Phoenix TV.

As to.

[noise] share buyback or.

Well.

You know.

Because we're still waiting for the pool the shareholder.

For the you didn't do and Oh, So right now we have received.

Total us dollar 20 minute.

That's one minute 20 minute so oh.

It's not a time to talk about it but we want to keep the option open.

Thank you as phones on thank you bet you bet Akcea.

Thank you.

Your next question comes from the line of Binbin Ding.

From JP Morgan Please ask your question.

Good morning management. Thanks for taking my question. My first question is regarding the sale even stake to sign a supplemental agreement and of July with another buyer and increase the number of shares being transferred to 212 million.

Are the same price of 448 million or U.S. dollar. So what is the thinking behind such a change.

My second question is a follow up on him in the past.

So from the agreement it seems that you have already received some some cash payment of August of this year. So can you give us some color regarding the timing of the given that in the future I going to do it.

And the next a few more powerful waiting until the deal is 40 coaster in tiny tiny thank you.

[noise] yeah. There okay. Thank you Bing Bing this is Sean.

I think there are several reasons for the valuation adjustment.

First both parties agreed to close the deal regardless of any dispute lease by any party units back to satisfaction of closing conditions under the original.

Share purchase women second from a competitive point of view the valuations of our comparable companies have been greatly.

Adjusted.

In the recent period, we see a significant.

Oh don't run of that valuation or comparable companies. This trend has led to major revisions to the old valuation model and in turn our previous valuations.

Third trying to tighten its foreign exchange control doing to try to use trade war in order to proceed with the transaction, we made a profit adjustment to the definitive agreement.

But I want to emphasize even under the new valuation.

Oh, we were still receive.

A very handsome return of almost six times the original investment.

Via a significant cash injection. So this is a.

From an investment point of view basically this is a home run.

We had problems.

As to the timing of the further payment I want to say that after receiving the first tranche of U.S dollar 100 meeting last week, the buyer must pay the remaining EUR 50 million U.S. to us we seem to be working days after receiving approval from the Phoenix TV shareholders meeting.

And after we see the addition of the passage of the pit 50 million it will be street.

Distribute a 200 million U.S. dollar she is.

An update the register of shareholders.

He does 50 million deposit is not paid in due time will come.

Confiscate the total 200 million U.S. dollar previously received.

[noise] so.

Also to further reduce the risk of nonpayment.

We have signed a counterparty Vincent.

After we transferred 200 million U.S. dollar worth of shares the voting rights will be shared by the buyer on us.

On the buyer will act in concert with us into one of the following three conditions, who feel is fulfilled.

First the buyer pays Empire.

Entirety of the remaining payments within three to six months after paying the first tranche second within three miles of the first tranche is paid.

The buyer makes a payment of the 200 million by the valuation of no less than 1.4 million.

Answered the buyers the buyer makes that the public opinion.

Of 30 minutes in addition to the 15 minute deposit.

So therefore, the additional 15 minute deposit on cancer Party agreement will serve to significantly reduce the reason.

Involved in a transaction.

Yeah, Hey me did I answer your question.

Oh, yes, thanks very much thank you.

Thank you. Thank you.

Your next question comes from the line of Chuck Glean from first Shanghai's Securities. Please ask your question.

[laughter].

Hi management actions.

Hi, Mike Hi, Todd and thanks for taking my question.

Oh sure I lost track of Jay on the short form video.

[noise], Okay, Hi, this is Sean.

Currently I think the development or video comes in mostly center Youd, they're generally the constant unprofessional either.

The UGC market is incredibly competitive.

And now where our strength lies traditionally we have to admit.

However that being full from X.

For Peace news operation.

Professional media content remains you know.

The man to be our focus.

The development of high quality short form videos is.

Priority for us.

The masses video content library of Phoenix, TV coming news history.

So that's the interviews culture shows a more is at the core of our media Pat.

Well the competition is mostly focused on entertainment on the variety shows our rich content Library. Yes. These are key differentiator in today's highly.

Homogenized.

Market.

We see a strong demand for this type of culturally who did on a highly differentiated constant you know core user base.

Definitely more demand than what the market is currently capable.

[noise] of supply.

So this is why we plan to integrate Phoenix you'd be comfortable with high quality documentaries and interview skills.

By creating new categories or media content, such as hiking reality shows a we will be able to provide innovative and differentiated premiums for trying to speed to market.

As for right now Oh, we are planning to have a separate team.

Spearhead the implementation of certain project.

This team will continuously improve our company management.

Her tax optimization sales controlled development.

And.

Advertisements.

We're also focused more on the for the upgrades of all video App promotion.

We plan to update everyone.

With more details in the coming quarters.

Okay.

Okay. Thanks.

[noise].

Thank you.

Once again, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

[noise].

There are no further question at this time I would now like to hand, the conference back to Ms. King. Louis Please continue.

[noise]. Thank you operator, we have come to the end of or to a <unk> session inaugural conference call. Please feel free to contact us. If you have any further questions. So well joining us on this call have a good day.

Thank you. Thank you. Thank you bye.

[noise], ladies and gentlemen that does conclude our conference for today. Thank you for participating you may now all disconnect.

[noise].