Good morning and good evening, ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited Third Quarter 2023 Earnings Conference Call. At this time all participants are in listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. I will now turn the call over to the first speaker today, Ms. Lingling Kong, IR Director at DouYu. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our third quarter 2023 earnings call. Joining us today are Mr. Mingming Su, Chief Strategy Officer and Mr. Hao Cao, Vice President of Finance from Interim Management Committee. You can refer to our third quarter 2023 financial results on our IR website at ir.douyu.com. You can also check a replay of this call when it becomes available in a few hours on our IR website. Before we start, please note that this call may contain forward-looking statements made pursuant to Safe Harbor provision for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involves known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results performance or expectations implied by this forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statement, risk factors and details of the company's filings with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call. Before I provide an update on our business performance for the third quarter of 2023, on behalf of management, I'd like to briefly address the current recent situation concerning Mr. Shaojie Chen. As announced, DouYu have formed an Interim Management Committee to manage the company's operations until further notice, as of now speak on behalf of our Interim Management Committee on Business update and the call will be handed to our Vice President of Finance Mr. Hao Cao for financial discussion. In the third quarter of 2023 but diligently executed and optimized our corporate growth strategy steadily advancing our business. For the…

Thank you, Lingling. Hello, everyone. In the third quarter against a challenging macroeconomic environment, we maintained a stable financial performance by executing efficient operational strategies such as adopting a flexible pricing mechanism for revenue-generating products and further optimizing content costs. Together with our ongoing effective cost control measures, our adjusted net profit has achieved stable growth for the third consecutive quarter. Now let's take a look at our financial performance in more detail. Total net revenues in the third quarter of 2023 decreased by 24.4% year-over-year to RMB 1.36 billion. Live streaming revenues were RMB 1.15 billion, a decrease of 32.5% from RMB 1.71 billion in the same period of 2022. The decrease was primarily due to the soft macroeconomic conditions, which impacted the spending willingness of some new and price-sensitive paying users. Coupled with a smaller user base resulting from our strategically decreased marketing spending, the number of total paying users decreased year-over-year. In response to the soft consumer sentiment, we provided lower-priced revenue products to sustain the spending habits among mid to long-tail paying users, which resulted in a decrease in quarterly ARPU. Our quarterly ARPU was RMB 306, down 4% from RMB 319 in the same period last year. Advertising and other revenues were RMB 208.2 million, an increase of 123.2% from RMB 93.3 million in the same period of 2022. The year-over-year increase was primarily driven by the increase in other revenues generated through our other innovative businesses. Cost of revenues in the third quarter of 2023 was RMB 1.17 billion, a decrease of 24.6% compared with RMB 1.55 billion in the same period of 2022. Revenue sharing fees and accounting costs decreased by 29.7% to RMB 0.93 billion from RMB 1.32 billion in the same period of 2012. The decrease was mainly driven by 2…

Thank you. [Operator Instructions] Our first question comes from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language]. Thanks, management, for taking my question. My question is really about how the macro environment will affect the game broadcasting sector and how would that affect our operations? Thank you.

Thank you for your question. Over the past 3 years, the environment in the domestic game live streaming industry has been in a state of meteoric change. From the macro perspective, policies and market and the overall economic environment are all essential factors to consider. Firstly, the live streaming industry has entered a stage of regular supervision. [Indiscernible] deeper and stronger requirements are being implemented for content review, compliance, operations, et cetera. Our goal is the long-term healthy development of the platform and activity cooperating with regulatory authorities. As always, we are committed to fulfilling the platform's regulatory responsibilities. We will continually strengthen our compliance programs and regulate our operations across the platform with regular internal supervision, managing inappropriate live streamers and user irregularities. We will also continue to optimize the content ecosystem and increase our investment in high-quality tournaments and programs that infuse positivity and quality content throughout our platform. These combined efforts aim to foster harmonious and healthy live streaming environment. Next from the perspective of the game market, game publishing has gradually resumed this year. The diversity of games and the users' needs and the consumption habits for games are constantly changing, which brings more opportunities to our platform operations as an established the platform in the game live streaming industry but it's continually upgrading and innovating our content operations and commercialization models. For example, new game promotions have shifted away from large-scale channel-related user acquisition to promotions that rely on a significant increase in content acquisition. This change benefits our content creation and operations based on game characteristics. For example, in terms of content consumption, we have been exploring commercialization models beyond the virtual gifting over the past 2 years. Among this, the game membership business derived from our platform's content and associated games has shown…

Our next question comes from Derick Pei with Morgan Stanley. Please go ahead.

[Foreign Language] This is Derick from Morgan Stanley. Thanks, management, for the time. Could you share a little bit more on the progress of the innovative business in terms of the launch of the new games? How would that improve the number of paying users and revenue? Thanks.

In addition to the traditional virtual gifting business model, we are also leveraging our advantage in game-centric content operations to further explore new sustainable revenue streams. So far, among the numerous innovative businesses we have looked into, the membership business has shown the strongest growth momentum, while also promoting a diverse and sustainable revenue stream. Since early 2022, we have continuously improved and promoted platform-wide membership system, upgraded membership functions and upgraded membership benefits to enhance the companion attributes of our products and strengthen interactions between streamers and members. All of these target stronger retention among our core paying users, and our membership renewal rate has been steadily rising for several consecutive quarters. Beginning in the second half of 2022, we designed and rolled out membership services that are more closely related to games. Through our deep cooperation with game developers, we were able to meet gamers' demand for in-game items. Our game-specific membership service is well aligned with the platform gaming content and is both attracting new users and expanding our revenue streams. Apart from the membership business, several other innovative businesses and development have shown promising prospects and started contributing to our revenue. These innovative businesses remain relatively small in scale, and we are still evaluating their development trends and stability. We look forward to providing appropriate updates when they become more viable. Overall, due to the high proportion of revenue generated from live streaming, our innovative businesses growth rates currently have a fairly limited impact on our paying users and revenue scale. Our virtual gifting business, on the other hand, comprises a significant portion of our revenue. Over the past 2 years, we have made a series of adjustments to our virtual gifting business such as lowering the frequency of revenue-generating operations and reducing low ROI activities. These adjustments were partly based on changes in the macro environment and partly on the changes in our operational priorities. Both were aimed at achieving the platform's long-term healthy and sustainable development. Although our company's overall user base and revenue growth were affected. We have also seen a gradual improvement in platform's ecosystem. Since the beginning of this year, we have continued to strengthen the retention of core paying users to maintain stability of paying users and overall revenue. In the fourth quarter, we will reduce some platform-wide operating activities. And given the current macro environment, we expect the scale of our paying users and the revenue from the virtual gifting business to experience a quarter-over-quarter decrease. At the same time, we are working to make new breakthroughs in our innovative businesses. Thank you. Next question, please.

Our next question comes from Brian Gong with Citi. Please go ahead.

[Foreign Language]. Thanks, management, for taking my question. This is Katrina Chiu from Citi asking on behalf of Brian Gong. Can management share with us the internal regulation policies and the related impact to your live streamers? Thank you.

Thank you for your question. In our ongoing commitment to enhance compliance and regulated operations, we have implemented various measures to fortify platform management and manage user conduct. During the quarter, we clamped down on non-complaint activities across our platform, addressing under the table dealings in game profits and other items and combating cyber trolls, such as cyber violence and online rumors. We successfully pinpointed the specific streamers and users engaged in non-compliant behavior by using advanced product analysis, tech-powered identification and responsive compliant mechanisms. To uphold the integrity of our platform and ensure effective regulation, we issued warnings to streamers and the users engaging in questionable behavior and administrated disciplinary action against them. In the event of more severe violations, we will take more stringent measures, including permanent bans. We are actively conducting day-to-day internal regulation across our platform, maintaining constant vigilance and monitoring improper conduct and taking strict disciplinary measures to address non-compliant activities on the platform. We regularly disclose these activities on the DouYu website, informing users about the measures we take to manage positive platform environment and repeatedly emphasizing the importance of complying with our platform's rules and regulations. We will also working with our users to jointly cultivate a positive online environment. We place a significant emphasis on user guidance and education, promoting our platform's rules and regulations to users through the DouYu classroom initiative, enhance users compliance awareness and further improving the cyber environment across our platform. Regarding our streamers, we have consistently educated and guided them on appropriate conduct and content within the platform. Elevating their awareness of compliance on the content front, we have ensured the sustained, stable delivery of high-quality content to our users through continued content innovation and diversification. Additionally, our data tools empowered streamers with insights into content production and operational analysis. This proactive approach has in turn given streamers a better grasp of user needs and market trends, providing them with the insights they need to actively adjust their live streaming strategies, which has improved both live streaming quality and efficiency and boosted their interest in producing live streaming sessions. Till now, the company's operations remain normal. We believe our comprehensive platform management and guidance measures are effective and our streamers have placed trust and support in our platform. We remain committed to further enhancing compliance and fostering content innovation, ensuring that our streamers operate within a healthier live streaming environment that features greater integrating. We are also dedicated to elevating the quality of our content services and user experience. Thank you. Please, next question.

[Operator Instructions] Our next question comes from Lei Zhang with Bank of America. Please go ahead.

[Foreign Language]. Thanks, management, for taking my question. Can you give us some updates on your margin spend? Any room we can optimize in all parts, additionally, any color on the cash flow in future? Thank you.

Thank you for the questions. As to profitability, in fulfilling our commitment to long-term sustainable growth, we continue to adjust our live streaming business. Here, we have successfully elevated the company of all operating efficiency by optimizing costs and emphasizing ROI. Navigating today's complex macro dynamics, we have made significant strides in our refined operations, achieving growth in net income and adjusted net income for 3 quarters in a row. Let me walk you through how we've improved our operating efficiency, mainly in 2 aspects. Regarding our cost of revenues, we optimized the cost of our traditional business to counterbalance increased copyright costs and the cost of our innovative business, effectively keeping our overall cost fairly stable. The largest component of our cost structure is revenue sharing fees. This remained at a historically low level after several quarters of actively adjusting our revenue-generating activities. And furthermore, we have significantly optimized our content costs, which mainly include streamer compensation, copyright costs and the cost of our self-produced content. We have taken steps in recent quarters to enhance efficiency and ROI of our self-produced content on multiple fronts, achieving favorable outcomes. In the third quarter, we assessed our copyright costs and the cost of our self-produced content, enabling us to better align the number of tournaments and self-produced programs. With these insights, we were able to strategically consolidate a line-up of complementary premium content offerings while achieving a well-balanced of all cost structure. Additionally, we strengthened performance-driven assessments of streamers and optimized their compensation metrics, resulting in a sequential reduction in streamer compensation expenses. For operating expenses, we effectively optimize our expenses by implementing measures such as cutting back on channel-related user acquisition expenses and refining our organizational structure. While third quarter operating expenses increased slightly quarter-over-quarter, this was largely due to…

Our next question comes from Raphael Chen with BOCI Research. Please go ahead.

[Foreign Language]. Thanks management team for taking my question. My question is about users. Firstly, could management elaborate more about the MAUs in this quarter? Secondly, could we have some color on the fourth quarter MAU guidance, especially with the help of League of Legends Pro Championship? Thank you.

Thank you for your question. How has mobile MAU performed well in the third quarter? As mentioned in our prepared remarks, thanks to the platform's high-quality content. Our approach to growth has always been content driven. This trend rate paid off during the summer season. Firstly, during the summer peak season, we broadcast the finals of several official summer tournaments and strengthened our investment in derivative content based on official tournament content, such as the co-streamed live commentary by streamers and postgame review programs. Derivative content is popular among users in large skill official tournaments such as LPL and KPL. The interactions between streamers and users were more frequent, attracting more new users. Next, the comprehensive programs we launched based on new guests and the introduction of gamer benefits in collaboration with game developers have attracted new users and invigorated existing ones. For example, as mentioned earlier, the premier PGC royalty show featuring Eggy Party reached a record high MAU in the game segment during its broadcast in July. And the number of viewing hours also doubled compared with the typical daily average. Additionally, during the KPL summer tournament, we collaborated with game developers to launch a 2-month long benefit activity on our game segment, including a game top-up, customized special effects, which also drove in more player participation. With the conclusion of summer tournaments, the MAU in the late part of the third quarter began to wind down. In general, there are fewer official event in the fourth quarter. Although the LOL World Championship tournaments are held in the fourth quarter, the schedule is relatively shorter. At the same time, there are more holidays in the fourth quarter. And users typically engage in more offline activities during this time, as all of these factors can weigh on MAU levels in the fourth quarter. We will maintain our prudent marketing strategy and stick to our content-driven strategies for user retention and growth to mitigate the adverse seasonal effect on MAU. Our content driven strategy to facilitate platform growth has remained unchanged for a while now. By continuously investing in high-quality content learning about the user content demand, upgrading content recommendation algorithm, providing technical support and updating relevant project factors, we have stabilized those core user base and gradually attracted the new users. Therefore, despite the complex market environment, our core user data remains stable overall. We are also actively exploring new models to promote a second phase of rapid growth in user scale on our platform. Thank you. Operator, please.

Thank you. It's all the time we have for questions. I will now turn the call back over to management for closing remarks.

On behalf of the management, thank you for joining our call. We look forward to speaking with everyone next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.