Hello, ladies and gentlemen, thank you for standing by for the Second Quarter 2023 Earnings Conference Call for HUYA Inc. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I will now turn the call over to Ms. Hanyu Liu, Company Investor Relations. Please go ahead.

Hello, everyone, and welcome to HUYA'S second quarter 2023 earnings conference call. The company's financial and operational results were issued earlier today and are posted online. You can also view the earnings press release by visiting the IR website at ir.huya.com. A replay of the call will be available on the IR website in a few hours. Participants on today's call will be Mr. Songtao Lin, Chairman of HUYA; Mr. Junhong Huang, Acting Co-CEO and Senior Vice President of HUYA; and Ms. Ashley Wu, Acting Co-CEO and Vice President of Finance. Management will begin with prepared remarks and the call will conclude with a Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties, as such the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's prospectus and other public filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that, HUYA'S earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures, HUYA'S press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our Chairman, Mr. Songtao Lin. Please go ahead.

[Technical Difficulty] Hello, everyone. Thank you for joining our conference call today. It's my pleasure to participate in HUYA'S earnings call for the first time and to speak with all of you. We are celebrated our 7th anniversary last week, a remarkable milestone in this industry. Since I assumed my role as HUYA'S Chairman in May, I have conducted a comprehensive review of the company's business strategies with the company's management and business operations team. As a leading game live streaming platform, we are having served a large number of games enthusiast, content concentrators and the partners in the industry by then, since its inception. Now we aim to build on HUYA'S success and the experience with - the company's role in the gaming industry. We will be exploring more opportunities that completeness HUYA, whereas established user community and the company ecosystem to drive long-term, sustainable business development. We shared a brief strategy with you earlier this month and would like to take the opportunity today to elaborate on our latest plan. Given we have the proven track record in the game live streaming market and close collaboration with industry partners, we are well-positioned to achieve this new goal. As a company enters the new phase of development, I’m confident that our upgraded vision is to promote sustainable vitality and propel HUYA'S future growth. Now I would like to turn the call over to our Acting Co-CEO and SVP, Junhong Huang to discuss our strategies in greater detail. Thank you.

Okay. Thank you, Mr. Lin. And hi, everyone. I'm glad to speak with you today. To expand on our Chairman's remarks, let me share some specific about our current key objectives with respect to our new strategy. First, we plan to shift our commercialization focus going forward exploring and increasing our users' value by integrating more game related service into our platform. Since we are inception, we have largely monetized our user base through our live streaming service, which primarily generate revenue by commissioning users visual gifts paid to broadcasters. Converting regular users into paying users involves a relatively long process under our current core model. And conversion efficiency has yet to be improved. However, as most of you know, a significant part of our users are also gamers. Based on our service and insight, the active gamer user on we are live are willing to spend both on game play and related in-game purchase. Also, the proportion and amount of in-game spending by this game users tend to be higher than death of general gamers. Our rich game and export content offerings have already satisfied our game users content consumption needs, and we believe we can further capture this user group’s commercial value by meeting their broader game related needs with expansive service models such as game distribution in game item sales and game advertising. Let's take in game item sales as an example. We have previously held several successful in-game sales of game tools, but these were one time event that functions mainly as marketing and promotional activities for those games. Going forward, we plan to regularize in-game item sales and established a recurrent cooperation mechanism with various games to misuse ongoing demand for in-game purchase of schemes, weapons, and other items, especially when user watch broadcasters utilize…

Thank you Junhong and hello everyone. I will provide some updates on our operating metrics and financial for the second quarter of 2023. On the user side, HUYA Live mobile MAUs which 82.9 million in the second quarter, compared with 82.1 million in the first quarter and 83.6 million for the same period last year. This slight sequential improvement was mainly attributable to the increased e-sports content and entertainment programs we offer in the quarter, with the new game launches also enrich the platform's game content. Meanwhile, users and broadcasters time spent on offline entertainment activities continue to affect us to some degree, especially given several short public holidays during the quarter. Overall, we maintained a stable user scale in the second quarter with the app next month's user retention rates staying above 70%. Now, the content side. In terms of license e-sports event, we forecasted around 75 party professional e-sports tournaments in the second quarter of 2023, attracting a viewership of approximately 490 million. We broadcasted a higher number of events in Q2 than in Q1, as more tournaments were scheduled, for fewer events than in the same period of last year, as we continue to implement stricter content procurement policies. Domestic Professional Leagues for major game titles, such as the LPL Summer, KPL Spring, and CFPL Summer continue to deliver strong performances. Also, both the LOL mid-season Invitational and the CS:GO BLAST Paris and Asia proved very popular. In June, we broadcasted - Valorant’s Masters Tokyo, a tournament featuring professional teams from China and around the world. Given the timing of this major event, just before the official China launch of Valorant in July, it attracted a passion from our users and serve as an engaging teacher for this new game on our platform. Currently, Valorant is gradually…

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

[Foreign Language] My first question is about our new strategies. Can management, give us more details about the implementation? And secondly, talking about the target for our new strategies, are there any, short, medium and long-term targets that we can share? Thank you.

[Foreign Language] Based on HUYA’s existing user community, and content ecosystem, we hope to further enhance the commercialization of game content and strengthen the industrial linkage, bring new breakthroughs to HUYA and improving our position in the game market, and develop long-term opportunities in a game value trend and promote the long-term sustainable development of the business. And our main goals and plans includes the following points. We shift the focus of commercialization towards scam related services, such as scam distribution, game items sales, and game advertisements, so as to deeply explore the commercial value of game users. This is based on our significant gamer population. Although, our users are willing and able to spend money on games, their related consumption on HUYA platform has been very limited due to our previous business model. And therefore, we plan to provide more game related services by strengthening corporation with the upstream game studios and broadcasters. These cannot only meet the needs of the gamers to buy in-game items and discover and download new titles when watching live games, but also bring additional revenue channels for game manufacturers and increase the revenue stream for broadcasters, which is beneficial to all the parties in the industry chain. At the same time, we strive to optimize the income structure of content creators on our platform and expand the income sources for broadcasters other than virtual gift revenue sharing and sign on fees, and let the broadcasters get more income from the sales, distribution, and advertising of game items. This is also conducive to enhancing the relevance between HUYA's content cost and income and reducing the fixed sign-on fee cost and improve the efficiency of the content cost we expand. At this stage we're mainly engaged in the infrastructure building for new business, including the creation of functions and products needed to provide game related services, and also negotiating commercial terms with relevant game studios and publishers. Earlier this month, we basically completed the development of the function of in-game items sales mall and plan to activate the process of in-game items sales and game distribution this year and make them available on several games. Therefore, this part of business is expected to have a relatively small scale of income in the year 2023. At the same time, we are also making some adjustments to the live broadcast monetization business to reduce some inefficient resource investment. And next we will expand game related services to more games, including mainstream games and potential new titles, and further optimize the user experiences. And our goal is to continuously increase the revenue proportion of game related services in the next three-years and strive to achieve a more balanced income structure for the company as a whole. By which we mean that we hope to make this part of gang related services income as about 30% of the total income.

Your next question comes from the line Daniel Jang from UBS.

[Foreign Language] Let me translate myself. The company is going through a major strategic transformation. Given this, what is the outlook for the revenue and margins in the second half of this year?

[Foreign Language] In transforming our business, in order to mobilize and allocate internal resources in a more targeted manner, we have begun to actively adjust various aspects of our existing business. For example, we are reducing some inefficient life broadcast functions, adjusting the incentive for live broadcaster activities, and the proportion of fixed sign-on fees. These adjustments may cause fluctuations in our operational and financial indicators in the short-term, especially in the second half of this year, when the scale of the new business revenue is relatively small and the year-over-year decline of live broadcast business revenue may be larger, than that in the first half of this year, due to the impact of resource rate allocation. So this will have a more obvious impact on the overall revenue. At the same time, we will continue to promote measures to reduce the costs and increase efficiency, and adopt stricter control over expenditures. Although there will be some new investments, such as further research and development and talent acquisition related to new businesses, we will continue to be cautious about the content expenses, such as copyrights and broadcasters. And we will be cautious about channel promotion in terms of operating expenses. And in terms of the profit, we still maintain the expectation that, the gross profit margin will increase for the whole year and the non-GAAP net loss will be narrower than that in 2022. In the medium and long-term, the GP margin of the game related business is expected to be higher than that of the existing live broadcast business, with a bigger mix of high gross margin business revenue and because of the content cost related to broadcasters more closer to income, we expect the overall profit situation will be improved and be maintained sustainably.

And the question comes from the line of Lei Zhang from Bank of America Securities. Please go ahead.

[Foreign Language] My first question is regarding the updates on the recent regulatory enrolment, and any impact our business. Secondly, how should we look at the performance of Tencent's newly launched the game Valorant in our platform? Thank you.

[Foreign Language] At present, the authority requirements on the content of a live broadcast platform, the behavior of broadcasters and users and the protection of miners are becoming more and more standardized and systematic. And therefore, the overall management trend is also relatively standard and strict. We believe that the purpose is to better promote the standardization of the industry and promote the benign and sustainable development. As a leader in our industry, HUYA has recently taken the initiative to upgrade and optimize the content and functions of our platform and refine the operation strategy and improve the efficiency and create a healthier platform environment. We will also continue to maintain a more standardized and healthy development model for the content on our platform to guide broadcasters and guilds to strengthen their compliance awareness and pay attention to improving the compliance capability on the platform through technical investment.

[Foreign Language] On the front of the new game, the live streaming performances of the new game is relatively stable as a whole, and we also expect that the game itself continues to be popular. It will attract more audiences of live and derivative content. HUYA provides launch incentives and traffic support for the launch of the new games. And we will also organize activities and provide some prop products together with the game companies and with weighted supports according to the different game characteristics. For example, Valorant, we have achieved a leading market share and for this popular e-sport scam, we will focus on establishing its advantages in the content ecology of events. And in addition to the official copyright events, we will launch more self-organized events for the scam, including events attended by the broadcasters and professional players to further enhance the activity of this scam sector.

Your next question comes from the line of Yiwen Zhang from China Renaissance.

[Foreign Language] So thanks for taking my question. So with our commercialization focus, shifting with our view, our content strategy? Is there any change we plan to make?

[Foreign Language] Our new strategic plan is deeply embedded in Who We Are’s, existing user groups and content ecology. The rich e-sports and game content on Who We Are helps to attract and maintain active core game users, which will also help to support our goal of providing more game services. The broadcaster content will continue to be an important part of content on HUYA’s platform, especially our new commercial forms such as game distribution and prompt sales will also be achieved through cooperation with the broadcasters. We will also provide more detailed content operation for potential and promising broadcasters and help create more popular content by combining event commentary with daily content and digging deep into the game content. We will also bring technical support of products such as bullet chatting, interactive games, live interactive functions and virtual live broadcast technologies. At the same time, this will help us to improve the application of AIGC, which will also help to enhance the diversity of the content's presentation. As for the content of copyright spots, we will also continue to implement cost reduction measures and cover the top tier events of major games on the basis of cost performance evaluation. As for the self made content, due to its relatively high ROI, we will give more attention to self made content and create a high-quality, self organized IP metrics, such as HUYA Thunder Series, HUYA All-Star Cup, and Tianming Cup. Through our own events, we will also better absorb the user traffic from large scale copyright events. In addition, we will continue to pay attention to the integration of live broadcast, video, game community and other content forms and continue to bring user quality experiences. Thank you.

Thank you. There seems to be no further questions. Now I would like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact HUYA Investor Relations through the contact information provided on our website for Piacente Financial Communications.

This concludes this conference call. You may now disconnect your line. Thank you.