Good morning and good evening, ladies and gentlemen. Thank you, and welcome to DouYu International Holdings Limited Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a 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 our first speaker today, Ms. Lingling Kong, IR Director at DouYu. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our second quarter 2024 earnings call. Joining us today are Mr. Mingming Su, Chief Strategy Officer; Mr. Hao Cao, Vice President of Finance; and Ms. Simin Ren, Vice President, from Interim Management Committee. You can refer to our second quarter 2024 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 the 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 involve 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 these 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 update -- to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call. I will now speak on behalf of our Interim Management Committee on our business update. The call will then be handed over to our Vice President of Finance, Mr. Hao Cao, for financial discussion. In the second quarter, we undertook several initiatives under our strategy of fostering a healthy, vibrant game-centric content ecosystem. Mainly, we focused on harnessing our robust assets in top-tier streamers and premium content, and deepen our cooperation with game developers to explore more diverse and sustainable partnership models. At the same time, we worked closely with streamers to drive…

Thank you, Lingling. Hello, everyone. This quarter, we focused on strengthening new revenue streams and enhancing cost control measures to advance our long-term development strategy, while also increasing shareholder returns. Despite the second quarter's tough macro environment, our revenue diversification efforts have already begun to yield positive outcomes. Let's look at our financial performance for the second quarter in more detail. Our total net revenues decreased by 25.9% year-over-year in the second quarter to RMB1.03 billion. Livestreaming revenues were RMB0.79 billion, down 37.2% from RMB1.26 billion in the same period of 2023. Livestreaming revenues were primarily impacted by challenging macroeconomic conditions, which prompted us to reduce promotional activities aimed at acquiring paying users and offer lower-priced revenue products to encourage consistent spending among our existing paying users. Consequently, we saw a year-over-year reduction in both the total number of paying users and our quarterly ARPU, which declined by 25.5% to RMB243 from RMB326 in the same period last year. Meanwhile, our accelerated exploration of new revenue stream produced encouraging results. Innovative business, advertising and other revenues, formerly known as advertising and other revenues, increased significantly in the second quarter by 80.7% to RMB242 million, up from RMB133.9 million in the same period of 2023. The year-over-year increase was primarily driven by an increase in revenues generated through our innovative businesses such as voice-based social networking service. Cost of revenues in the second quarter of 2024 decreased by 21.2% to RMB0.95 billion, compared with RMB1.2 billion in the same period of 2023. These cost reductions were largely due to a 18.1% decrease in our revenue-sharing fees and content costs to RMB0.8 billion from RMB0.98 billion in the same period of 2023. Revenue-sharing fees reductions were largely due to decreased livestreaming revenues, which was partially offset by the increase in revenue-sharing fees…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Ritchie Sun with HSBC. Please go ahead.

[Foreign Language] Thank you, management, for taking my questions. How does management view the current macro challenges and changes and the impact on the operations? How would you assess these challenges in terms of the impact on our business fundamentals as well as financials? Thank you.

Thank you for your question. [At the present] (ph), we face two primary challenges, intense market competition and macroeconomic headwinds. Height in the market competition, particularly the surge of gaming content and services on short video game platforms, has drawn users with short viewing hours and low stickiness away from our platform. This pressured our MAU in the short term, as reflected in the year-over-year and the sequential MAU decline in the second quarter. Nonetheless, our core user base continued to demonstrate the stability. Our long-term data monitoring and analysis revealed that our core users' key metrics, like viewing hours and activity levels, remained stable, thanks to our year-long strategy to focus on fostering a game-centric content ecosystem. So, it not only features a variety of gaming content, but has also established a stronghold across diverse verticals, catering to the wider ranging preferences of both mainstream gamers and niche gaming fans. Our particular significance is our loyal user base in the PC and the console game segments, which remains highly engaged, thanks to our focused cultivation efforts. To stay competitive in the market, we will prioritize our core users and maximize our platform's advantages while also driven ongoing content innovation and operational optimization. On the content front, we will continue to building our distinct and different content metrics. Operationally, we aim to offer a greater variety of gaming services to maintain the virtuous cycle between core user stability and healthy content ecosystem. We have also been actively advancing cross platform of content sharing collaborations, including [indiscernible] our streamer access for content co-creation, new game promotions, commercial partnerships and game prop marketing campaigns. This content and services offerings not only cater to existing users depending engagement, but also draw in new users through innovative business approach. In terms of our second…

The next question comes from Thomas Chong of Jefferies. Please go ahead.

I'll translate myself. Thanks, management, for taking my question. So, based on current competition environment, how's the stability of the streamers on our platform and any large investment on streamer resources in future? Thanks.

Thank you for your question. So, at present, DouYu's overall streamer assets remain stable. Competition for top-tier streamers in the livestreaming industry is ongoing. As user demand evolves and the industry develops, we continuously adapt our streamer strategies to address the competition for top-tier streamers. We maintain advantages in exclusive contracts, streamer training and operations. First, given our many years of experience in content operation within the gaming industry, our platform has accumulated a substantial pool of streamers, ensuring stabilities during their contract period. We also enhanced streamer content quality and efficiency through continuously refined operations. For streamers nearing the end of their contracts, we actively assess market conditions, operational strategies and signing costs and operational efficiencies before negotiating and selectively renewing the contracts. Second, we placed greater emphasis on streamers' refined operations, especially in niche game segment, DouYu, having grown alongside PC games, boosts deep streamer resources and a strong user base in evergreen game categories. By creating content and marketing activities tailored to the characteristics of these segments, we improved interactions between streamers and users, enhanced our community ecosystem and increased the stickiness of both streamers and users. In terms of streamer compensation, besides base compensation, we provided streamers with some resources and diverse income opportunities. We focused on game promotion and the sales of game props to provide streamers with more growth opportunities and earning potential, and this further solidified the stability of our top-tier streamers' resources in niche category. With the arrival of summer season, we also allocate more resources to streamer recruitment. Firstly, we revised our recruitment model, which previously focused on specific game categories. So, now, we no longer restrict streaming categories that's giving streamers more freedom to choose and experiment with different content. Second, we improved the reward mechanism, providing streamers with guaranteed…

The next question comes from Lei Zhang with Bank of America. Please go ahead.

[Foreign Language] Thank you, management, for taking my question. My question is mainly regarding margin. Can you share the driver behind year-on-year decline on second quarter's gross margin? And how should we look at full year gross margin and the overall margin trend? Thank you.

Thank you for your question. The second quarter's year-over-year decline in gross margin was mainly due to the decrease in livestreaming revenue. Although revenue-sharing fees have remained constant with the changes in livestreaming revenue and our revenue-sharing ratio has always stayed within a healthy range, the relatively fixed costs in livestreaming business, such as copyright costs and base compensation for streamers, did not decrease in line with year-over-year decline in livestreaming revenue. Therefore, the decline in livestreaming revenue put pressure on gross margin. While we have implemented a series of measures to optimize content costs and streamers' payments, the positive impact on overall gross margin has been relatively limited. In the face of macroeconomic and operating uncertainties, we have undertaken a series of measures to address the challenges posed by the decline in revenue while adjusting the revenue structure for 2024. On the cost side, we aim to alleviate cost pressure, so copyright control costs, increasing the co-creation of self-produced content, enhancing production efficiency and optimizing streamers' payments. On the expense side, we will continue to refine the company's organizational structure and optimize marketing strategies to strictly control operational expenses. Additionally, interest income is expected to decrease in the second half of 2024 due to decreased cash balances following dividend distributions, which will also impact our profitability in the second half of the year. As a result, it will be challenging for us to achieve net level breakeven for 2024. Looking forward, we will continue to refine our revenue structure, enhance operational efficiency and control costs to gradually improve the company's financial profile. Thank you. Next question please, operator.

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

[Foreign Language] Thanks, management, for taking my question. Just wondering the estimated cash balance by the end of this year, and any cash usage [pecking order plan to show there] (ph)? Thank you.

Thank you for your question. As of the end of second quarter, we had cash and cash equivalents, restricted cash and short-term and long-term deposits of RMB6.56 billion. In the second quarter, we repurchased US$8.5 million in ADS, a significant increase compared to the US$2.7 million in ADS we repurchased in the first quarter, reflecting our enhanced share buyback efforts in the second quarter. To-date, aside from normal business operations, large cash expenditures have primarily been used for shareholder returns, including a US$20 million share repurchase plan and a special cash dividend of US$300 million at the end of August. This demonstrates the company's commitment to shareholder interest and our determination to provide reasonable returns to shareholders while ensuring the company's long-term development. Despite the aforementioned large cash expenditures, our overall cash balance remained healthy and is sufficient to support our business operations and development. We will continue to closely monitor market dynamics and business development trends, flexibly adjusting our strategies to ensure the effective use of our funds and related risk control. Meanwhile, we will continue to invest in our communities' ecosystem and new businesses. These investments not only helped enhance user experience and strengthen our platform's competitiveness, but are also key to the company's long-term sustainable development. Through continuous technological innovation and service optimization, we remain committed to fostering a more vibrant and healthy community ecosystem and promoting the rapid growth of our businesses, thereby building the company's enduring momentum and long-term success. Thank you. Operator, next question, please.

The next question comes from Nelson Cheung with Citibank. Please go ahead.

[Foreign Language] Let me translate the question myself. Thanks, management, for taking my question. Wondering if management can share the latest development plan and progress regarding the cooperation with game developers and your expectation on the revenue growth. Thank you.

Nelson, thank you for your question. So, we implemented a revenue diversification strategy in 2022, including commercial collaborations with game developers based on our gamers demand, recognizing streamers' substantial influence on gaming commercialization and the vast opportunities in this space. We continue to delve into new revenue-generating avenues within the game content value chain and have established two primary forms of commercial collaborations with game developers. Last quarter, we shared that game membership revenue from sales of game props contribute to our innovative business revenue growth. Within this segment currently covered by our game membership business, we have boosted revenues by enriched game prop categories, enhancing platform benefits and increasing market frequency. In terms of expanding into new game segments, we launched game membership services in the League of Legends: Wild Rift in mid-July. We promoted these new services in livestreaming sessions by distributing limited edition props and platform benefits based on the current game theme. The real props provided by game developers and promotions both on and off our platform attracted gamers' attention and interest, contributing additional revenue streams. In terms of the progression -- the progress with our game developer cooperation, the convenience of collaborative promotional channels allows us to quickly expand this business model. Although this model currently contributes only a very small proportion of revenue, we see gamers' strong demand for game props sales and the growth potential for this business. For example, Moonlight Blade, a game launched in 2016, is one of the first games for which we initiate commercial cooperation on game props. Through various forms of cooperation with game developers, we have updated our product offerings to enable users to place orders directly through the prop mall, optimizing the users' purchasing experience. And as a result, users' average prop consumption level through our…

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

Thank you for joining our call. We look forward to speaking with everyone next quarter.

The conference has now concluded. Thank you for attending. You may now disconnect.