[indiscernible] Huya's first quarter 2024 earnings webinar. I am Hanyu Liu Huya Investor Relations. At this time, all participants are in listen-only mode. Please be advised that today's webinar is being recorded. 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 of management on today's call will be Mr. Junhong Huang, Huya's acting co-CEO and Senior Vice President; 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 on 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 this 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. With that, I'm pleased to turn the call to our co-CEO and SVP, Mr. Huang. Please go ahead.

Okay. Thank you, Hanyu Liu. Hello, everyone. Thank you for joining our earnings conference today. We are pleased to deliver first quarter results featuring a healthy user base expansion, growth in game-related services and a more stable overall revenue trend. We also improved our profitability with non-GAAP net income reaching approximately RMB92 million. With 2024 off to a good start, I'd like to share some details about the year's key synergies and recent developments, including our strategic transformation and commercialization focused content and platform ecology upgrades and technology and product advancements. Let me start with an update on our strategic transformation. We are making encouraging progress in the commercialization of our game-related services, driven by the rapid growth of revenues from game distribution and advertising services as well as in-game item sales. Our game relative services, advertising and other revenues formerly known as advertising and other revenues reached RMB244 million for the first quarter, representing growth of 137.6% year-over-year and 30.7% quarter-over-quarter. This growth reflects a strong and engaged base of high-value game users on our platform and validates our new directions potential. In terms of game distributions, we are broadening our coverage to include more games, both upcoming and existing titles. Our game users tend to have high commercial value potential with users' average spending level through Huya's distribution channel performing well, particularly in the MMO and SLG categories. We are also refining our operations to capitalize on their value as we develop game distribution services. For in-game item sales, we offer a diverse range of popular game props for a growing number of games. Additionally, we are expanding our offering of broadcaster customized in-game virtual items to help strengthen connections between broadcasters and their fans. With regard to game advertising services, we are working with more game companies…

Thank you, [indiscernible], and hello, everyone. I'll provide some updates on our operating metrics and financials. On the user side, we continue to solidify our user base despite the first quarter being the usual low season for live streaming activities. Upgrades to the Huya Live APP, an innovative cross-platform e-sports events and operational activities, drove Huya Live's average mobile MAUs to RMB82.6 million for the first quarter, up from RMB82.1 million for the same period last year. Also, the expansion of our game-related services and users paying for in-game virtual items contributed to a slight sequential increase in paying users on Huya Live, reaching RMB4.4 million. Moving on to our professional content initiatives. On the licensed content front, we broadcasted over 65 licensed professional e-sports tournaments in the first quarter of 2024 with the [spring speed] of LPL, KPL and CFPL, attracting the most viewers. Major Copenhagen for Counter-Strike 2 and Masters [indiscernible] for [indiscernible] also emerged as it hits on our platform. During the quarter, our licensed tournaments spent over 20 titles and the broad coverage of these popular e-sports games further enhanced our content competitiveness. In addition to licensed e-sports content, we broadcasted 14 self-organized e-sports tournaments and entertainment PGC shows during the quarter. Many of these performed quite well, even though the first quarter is traditionally the off-season for large events. In addition to the cross-platform New Year's e-sports all-star event that we just mentioned, Huya Champions Cup for CrossFire Mobile and the commentary program for Major Copehagen event also capture real attention. Furthermore, we hosted the second [stop] of our village game series, the Youth [indiscernible] Village Games, for Honor of Kings in [indiscernible] Province. This event was a big success, advancing our efforts to expand the influence of e-sports content while also promoting local culture…

Thank you, Ashley, and hello everyone. If you're dialing in [Operator instructions]. For the benefit of all participants on today's call, if you wish to ask your question to the management in Chinese, please immediately repeat your question in English. Today's first question comes from Lei Zhang from Bank of America. Your line is open. Please go ahead.

[Foreign Language] My question has been regarding the game-related business, can you give us some update here? And we also noticed some new game to launch such as D&F mobile and will they bring more opportunity to add?

[Interpreted]. We started our strategic transformation last August, focusing on commercialization upgrading and providing more game-related services. At present, we have made positive progress in the commercialization of game-related services through the rapid growth of revenue from game distribution and advertising services and in-game item sales, the revenue of our game-related services, advertising and other segments in Q1 reached RMB244 million, up by 137.6% year-on-year and 30.7% quarter-over-quarter. This growth not only reflects the high-quality gamer user base on Huya platform, but also validates the development potential of our new business direction. Specifically, in terms of game distribution, we are constantly expanding the coverage of games to include more new and existing titles. This year, we have covered the distribution of popular games, including Honor of King, Battle of Golden Spatula and performed very well. For the new games we participated in before, such as [indiscernible] mobile and Dream Star, Huya distribution channels have also achieved leading results, especially by ARPU of users in the game, which proves that the game users on Huya platform have high commercial potential. In this regard, we are constantly optimizing our operations in order to make better use of this advantage. In terms of sales of game props, we provide a variety of popular props for more games, which have covered dozens of games at present. At the same time, we are also cooperating with the companies to customize props for broadcasters, which helps to strengthen the relationship between the broadcasters and fans. For example, one of our previous broadcasters achieved a transaction value of more than JPY 10 million when selling personal customized game scenes in just one streaming session, reflecting the potential of this business model. In terms of advertising services, we are cooperating with more different game companies and carrying out…

Thank you. And our next question comes from Yiwen Zhang from China Renaissance.

[Foreign Language] So this year, we had the second year of our 3-year road map made out early. And can you give us an update on 2024 revenue and profitability outlook.

[Interpreted] In the first quarter, our total revenue was JPY 1.5 billion, and the rapid growth of revenue from game-related services, advertising and others partially offset the decline in live broadcast revenue. Therefore, although Q1 is usually an off-season for live broadcast business due to the influence of large-scale events and more holidays during the spring festival for broadcasters. Our total revenue only decreased by 1.7% compared with Q4 last year, and the overall revenue tends to be quite stable. In terms of revenue mix, game-related services, advertising and others accounted for 16% of the total Q1, up from 12% in the previous quarter and 5% in the same period last year. On the profit, due to the high gross margin of game-related services, advertising and other segments, the increase of their contribution to total revenue also pushed up gross margin in this quarter. With our continuous efforts in cost optimization, Q1's gross profit margin increased to 14.7% from 13.7% in the same period last year. We also reduced the total operating expenses by 17.8% year-over-year and other 3 OpEx line items achieved double-digit year-on-year decline. On the whole, the profit level in Q1 achieved an effective improvement, of which GAAP net profit increased by about 79%. As for this year's revenue, we expect that in Q1 life revenue from a year-over-year point of view will continue to be affected by last year's strategic transformation of internal resources allocation and more prudent operation. However, compared with the first quarter, the revenue level is expected to continue to be stable and more so in the following quarters. As for the Game-related services [ averting ] and others, we expect that the following quarters of the year will see a relatively fast growth, which will lead to a gradual recovery of our overall revenues from the previous quarter. As of just -- as mentioned just now, most of the revenue from game-related services is recognized after revenue sharing with the game companies as the net revenue. So despite the rapid growth of our business scale, we recognized value not as that much. And at the same time, given the nature of the business, we think that it would lead to a higher level of gross margin, gross profit margins. From a full year perspective, due to the changes in revenue mix brought about by the new business growth, the proportion of higher gross margin business and total revenue will gradually increase. We will continue to optimize our event content costs and broadcasters costs. So compared to 2023, we expect the gross profit margin for the year will continue to improve. Gross margin is also an indicator that we are now placing greater emphasis on. On the operational side, we'll continue to be more prudent in our spending, particularly on selling expenses and labor costs. Overall, we'll continue to maintain our expectation of a full year profitability in 2024 and profit growth over 2023.

Our next question comes from Ritchie Sun from HSBC.

[Foreign Language] I have a question about cash usage. We have $1.3 billion cash on hand, and we have had through the buyback program. So any updated plans in terms of, say, the buyback program to extend it or even increase the quarter as well as any plans for annual dividend down the road?

We announced a share repurchase program of up to $100 million in mid-August last year. And in the first quarter of this year, we repurchased nearly $20 million worth of our stock. As of the end of March, we had repurchased a total of $48.5 million. And in March, we announced a special cash dividend totaling approximately $150 million. So in total, these initiatives have returned nearly $200 million to Huya's shareholders. At the end of March 2024, the company held cash, cash equivalents and deposits totaling approximately $1.3 billion. The change compared to the number at the end of last December is a result of share repurchase expenses and payments from operations. After the completion of the current cash dividend payment of $150 million, we expect to have over $1.1 billion in cash, cash equivalents and deposits. Shareholder returns are a key focus of the management, and we will continue to carry out our shareholder return initiatives in a manner that aligns with the market conditions and the company's operations in order to reward the shareholders for their support and enhance the company's efficient use of cash.

Thank you. Now we will take our last question today from Thomas Chong from Jefferies.

[Foreign Language] My question is about the live streaming industry trend. How should we think about the competitive landscape or the relationship among different live streaming platforms? And how should we think about these changes to affect our users as well as host.

From the industry's point of view, the overall environment has become more open, and we believe that the platforms are no longer isolated or purely competitive to each other. The game live broadcasting industry has entered into a new a paradigm of growth that features both cooperation and competition. In this new market environment, we also believe that it brings broader opportunities to platforms to complement one another and share content and resources, thus creating more win-win possibilities. Therefore, Huya as the leader in this industry is also striving to break down platform barriers and meet multiple needs of the users and seize business growing opportunities. Strengthening cooperation and linkage with various platforms and products and upgrading the platform ecology is one of our important strategies this year. On the one hand, we are incorporating more with some live broadcasting platforms in professional content production, cross-platform broadcasting and commercialization. The new S eSports all-star events hosted by Huya in February this year is the first all-star events event for which we have broken down the industry barriers. It also marks a major breakthrough in content corporation in the live game industry. At present, we have a number of cross-platform self-made events and activities in preparation -- in addition to the broadcasters and signed eSports players on Huya platform, these events will also invite players from other platforms to participate in them so as to achieve in-depth cooperation on multiple platforms. For example, the upcoming Huya LOL Legend Cup will bring together outstanding retired players and active e-sports players from the whole network for competition. The players selection in forming of teams have attracted widespread interest from legal pledges players and e-sports viewers on multiple platforms. And this response has been very enthusiastic, which demonstrates Huya's brand influence as well as…

Thank you once again for joining us today. If you have further questions, please feel free to contact Huya's Investor Relations through the contact information provided on our website or Piacente Financial Communications. This concludes today's call, and we look forward to speaking to you again next quarter. Thank you. Bye-bye.