Hello, ladies and gentlemen. Thank you for standing by for LIZHI INC.'s Q2 2022 earnings Conference Call. At this time, all participants are in a listen-only mode. After management's remarks, there will be a question-and-answer session. Today's Conference Call is being recorded. I'll now turn the call over to your host, Effie Kang, Head of Capital Markets for the company. Please go ahead.
Thank you very much. Hello, everyone, and welcome to LIZHI INC.'s Q2 2022 earnings Conference Call. We released our financial and operating results via Newswire services earlier today, and they are available online. Participants on today's call will include our Founder and CEO, Mr. Marco Lai, our COO, Mr. Zelong Li, and our Acting CFO, Ms. Chengfang Lu. Mr. Li will begin with prepared remarks on business development. I will then deliver prepared remarks of financial results on behalf of Ms. Lu, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, our earnings highlight presentation and a webcast replay of this Conference Call will be available on the IR section of our website at ir.lizhi.fm.
Before we continue, please note that today's discussions will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions. Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control. The company's affiliates, advisors, representatives, and underwriters do not undertake any obligation to update this forward-looking information, except as required under the applicable law. Please also note that LIZHI's earnings press release and this Conference Call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures.
Please refer to LIZHI's earnings press release for reconciliation of unaudited non-GAAP measures to unaudited GAAP measures. I will now turn the call over to our COO, Mr. Zelong Li. Please go ahead. Hello, everyone, and thank you for joining our Q2 2022 earnings Conference Call. In the Q2 of 2022, we remained focused on dual-pillar approach of interactive entertainment plus audio-based social networking business development, and effectively executing globalized diversified product matrix strategy. In the Q2, our total average mobile MAUs amounted to 49.7 million. Average monthly paying users totaled 485,000, and revenue reached RMB 516 million. We also took steps during the quarter to elevate our organizational efficiency and advance the development of our in-house suite of technologies while continuing to execute effective operational strategies.
As a result, we further improved profitability and achieved a new record high- growth margin of 34%, representing an increase of 600 basis points year-over-year and 200 basis points quarter-over-quarter. Moreover, we achieved our third consecutive quarter of net income on a GAAP basis, which increased to RMB 18.85 million in the Q2, up 15% sequentially and recording a profit versus a net loss in the same period of last year. Next, I'd like to share more details regarding our business development in the Q2.
从今年年初以来，我们在业务方向上明确了将音频互动娱乐作为主要的运营重心。在资源投入以及市场策略上，我们更加地聚焦，有效地提升了运营的效率和整体的盈利能力。在近期呢，我们还基于原有的互动娱乐的生态，孵化并推出新的互动娱乐的产品，例如小西米，进一步丰富了互动娱乐的产品矩阵，提升了整体的产品竞争力。此外，我们还通过构建统一的生产者运营管理平台，充分发挥优质生产者的价值的创造力，为互动娱乐业务的长期增长奠定了基础。
At the beginning of this year, we identified the interactive audio entertainment business as our operational focus and directed our resources and marketing tactics accordingly. This strategy has significantly improved our operating efficiency and overall profitability. To augment our existing interactive entertainment ecosystem, we recently incubated and launched the new interactive entertainment products such as Xiao Ximi, further enriching our interactive entertainment product matrix. In addition, by building a unified content creator operational platform, we unlocked additional value and greater creativity from our high-quality content creators, laying the foundation for the long-term growth of our interactive entertainment business.
第二季度，我们通过多元化的运营活动，有效增强内容创作者的参与度，进一步提升互动娱乐业务的盈利能力。例如，我们举办了夏季嘉年华主播争霸赛，通过了创新的互动赛事，提升主播活跃度，并加强用户与主播之间的连接。我们还推出了名人堂等创意活动，扶持培养新生代的主播，促进创作者在平台内的长期发展。此外，我们还与英雄联盟手游达成了品牌的联动，举办了英雄闪耀之声的翻唱大赛，鼓励用户通过创作和分享内容进行实时互动。我们也很高兴地看到，在第二季度，音频互动娱乐业务的用户渗透率同比提升350个基点到18.5%。平均月活跃的用户数达到了917万。另一方面，我们通过流量扶持等策略，提升了中长尾内容创作者的活跃度，进一步优化成本的结构，提升了整体毛利率的水平。在下一阶段，我们将继续集中资源去拓展互动娱乐的业务，孵化并打造多元化的音频互动娱乐产品的矩阵，覆盖更多核心用户的群体，加强互动娱乐业务的用户渗透率，促进付费转化率的提升。
In the Q2, we also effectively strengthened the content creator engagement through diverse operational activities, which further boosted the profitability of our interactive entertainment business. For example, we hosted a Summer Carnival creator event, improving content creator productivity and fortifying their connection with users through innovative interactive competitions. We also launched the novel events such as The Hall of Fame, to cultivate and support new generation creators, boosting their long-term development on the platform. Furthermore, we partnered with the gaming brand League of Legends: Wild Rift to foster our brand connectivity and organized the cover song contest, Voice of Shining Heroes, which encouraged users to interact in real time by creating and sharing relevant content.
We were pleased to see that the user penetration rate of our interactive audio entertainment business increased 350 basis points year-over-year to 18.5%, and the average mobile MAUs reached 9.17 million in the Q2. In addition, we enhanced the activity of mid- to long-term content creators through traffic support and other strategies, which further optimized our cost structure and overall growth margin. As we approach our next stage of growth, we will continue to concentrate resources on expanding our interactive entertainment business, incubating, and creating a diversified interactive audio entertainment product that covers more key user groups to improve its user penetration rate and further elevate the paying conversion rate.
在全球化发展方面，我们进一步升级了全球化社交产品TIYA的产品形态。丰富实时互动群空间的玩法，例如加入了真心话大冒险、有声GIF图等创新的功能，引导用户在线上空间通过多样化的方式进行互动和社交，整体强化了TIYA的社交属性。我们希望通过融合实时互动和线上娱乐，打造年轻人的线上社交空间，为用户提供创新的社交方式。随着TIYA用户的参与度跟活跃水平的进一步提升，新用户的好友互动率以及人均使用时长都保持了上升的趋势。在第二季度，用户的人均每日使用时长同比增长44%，月均的群渗透率同比增长1.5倍。截止至六月底，用户的好友关系链对数较去年同期增长1.4倍。未来呢，我们将继续基于年轻人多元化的兴趣爱好与潮流生活的方式，不断打磨我们的产品，促进用户关系的沉淀，打造更紧密的连接性的线上社交空间。
With respect to our global development. In the Q2, we further upgraded the product features of our global social product TIYA by enriching the interactive formats of the real-time interactive group space. As an example, we added innovative functions such as Truth or Dare and Audio GIF images to guide users online interactions and social activities in various ways, reinforcing TIYA's social attributes through the integration of real-time interaction and online entertainment. We hope to create an online social space for young people and provide innovative social formats to users. As TIYA's user engagement and activity grew, so did the upward trend in new user interaction rates and average time spent per user. In the Q2, the average daily time spent per user increased by 44% year-over-year, and the average monthly group penetration rate was up 150% year-over-year.
At the end of June, the number of pairs of friends connections increased by 140% compared with the same period of last year. Going forward, we will continue to optimize our products based on users' diverse interests and hobbies, as well as young people's trendy lifestyle. Strengthen user engagement and build a more closely connected online social space.
此外，在全球化的战略中，我们也在不断地拓展新的市场。通过自研的能力，内部孵化面向国际市场的新产品。我们将基于潜在的市场机会以及不同的市场特点，依托过去成功的产品运营经验，结合本地化环境进行更多维度的创新。在多元化产品矩阵策略中，去拓展业务覆盖的市场边界，也同时释放更多的商业化的潜力，进一步去丰富多元化产品的矩阵。
In line with our globalization strategy, we have been consistently exploring new markets and incubating new products for international markets through our in-house development capabilities. Based on potential market opportunities and market differences, we will leverage our well-established experience in product operation and our multidimensional localized innovation capabilities to expand the market boundaries of our business within our diversified product matrix strategy, while unleashing more commercialization potential and enriching our diversified product portfolio.
与此同时，凭借在自研技术方面多年积累的经验跟优势，我们不断地加强通用平台的建设。近期，我们面向集团业务落地了自研技术综合平台声音云。致力于通过整合IaaS及SaaS三大云计算模型，构建技术成果全链路的矩阵，为集团业务提供系统化一站式解决方案。其中声音云的云基础设施基于混合云架构iRock，构建统一的操作管理平台，旨在实现多云合一的业务需求，提供灵活、安全并且稳定的云服务。PaaS端以自研的RTC实时音视频流技术平台DoReMi以及IM实时语音通讯平台Voder X为代表。基于即时声音创新社交的技术能力，提供快速、安全、高质量的音频及消息传输网络，为多样化的产品提供了更多定制化功能跟服务。SaaS部分，以商业智能分析平台为代表，旨在通过自动化精细化的智能数据分析，优化数据资产的智能管理，以数据驱动业务为发展。声音云还整合了智能投放平台等其他业务相关的服务，实现在产品研发落地、市场销售、运营管理效率等方面全面的提升。我们也相信，自研的技术能力是我们业务发展的基石。在未来，我们将进一步整合自研技术的能力和服务，更好地落地声音云在各个业务中的应用，赋能业务创新及全球化发展的战略。
Meanwhile, leveraging our years of experience and the advantages of our self-developed technologies, we have been strengthening the development of our versatile technology platform. Recently, we unveiled Voice Cloud, an in-house hybrid cloud computing platform we developed to meet the group's business demands. By integrating the three cloud computing models, namely IaaS, PaaS and SaaS, we created a full links technology matrix to provide a one-stop comprehensive solution for our business. The cloud infrastructure of Voice Cloud is based on the iRock hybrid cloud architecture, empowering a unified platform through which Sound Group can operate multiple cloud tools securely and reliably. On the PaaS side, Voice Cloud features DoReMi, a self-developed RTC real-time audio and video streaming technology platform, and Voder X, an instant messaging platform. Thanks to our innovative real-time audio and social networking technologies.
Together, DoReMi and Voder X provide a fast, secure, high- quality audio and messaging transmission network and support more tailored features and services for our various products. In addition, Voice Cloud SaaS segment is represented by Lizhi's business intelligence platform, which aims to upgrade internal data management efficiency through the automated intelligent data analysis and optimize the group's smart asset management database. Driving business development through the data analysis. Voice Cloud also integrates the intelligent marketing platform and other business- related services, which help to advance product R&D, marketing and operational efficiency. We believe our proprietary technology and in-house development capabilities are the cornerstone of our business development. We plan to further integrate self-developed technology and services, and then roll out Voice Cloud across our businesses, ultimately empowering business innovation and our global business expansion.
总体而言，我们在第二季度取得的成绩和积累的经验，为业务的长期发展奠定了稳固的基础。面向未来呢，我们将更加高效地落地产品矩阵以及全球化的战略措施，将核心资源投入到互动娱乐以及声音社交的业务中，提升整体核心技术的能力，优化资源的配置，进一步释放商业化的潜力，推动全球业务的发展。
In summary, our accomplishments in the Q2 have laid a solid foundation for the long term sustainable development of our business. Going forward, we will continue to refine and execute our product matrix strategy, globalization initiatives, and optimize our resource allocation by devoting key resources to advancing our interactive entertainment and audio-based social networking business and elevating our core technology capabilities. We will further unleash commercialization potential and accelerate our global business development.
好，谢谢大家。下面呢，我们有请资本事务的负责人Effy Kang代表我们的代理CFO鲁晨芳女士为我们介绍财务的业绩。
Thank you all. Next, I will turn the call over to our Head of Capital Markets, Effy Kang, who, on behalf of our Acting CFO, Ms. Chengfang Lu, will provide more details of our financial results.
Thank you, Zelong Li, and hello everyone. Today I will deliver the following remarks on behalf of Ms. Lu. We are pleased to report improving profitability in the Q2 of 2022. With our diligent efforts to enhance operational efficiency, our gross margin hit a record high at 34% in the Q2, up 600 basis points year-over-year. More excitingly, we have achieved a profit on a GAAP basis for the third consecutive quarter, with net income growing 15% sequentially to RMB 18.85 million. Moving forward, we will remain dedicated to executing our diversified product matrix strategy and enhancing core technology development to progress product innovation and commercialization.
Now I would like to provide a brief overview of our financial results for the Q2 of 2022. In the Q2, our total net revenues were RMB 515.7 million, compared to RMB 559.3 million in the Q2 of 2021. Primarily due to the decrease in the number of paying users and the average amount of user spending on our audio entertainment product. Cost of revenues was RMB 340.1 million in the Q2 of 2022, compared to RMB 400.5 million in the Q2 of 2021. Primarily due to a decrease in the revenue sharing fees because of the decrease in net revenues and the revenue sharing percentage to content creators.
Gross profit was RMB 175.6 million in the Q2 of 2022, representing an increase of 11% year-over-year. Non-GAAP gross profit was RMB 176.8 million in the Q2 of 2022, representing an increase of 9% year-over-year. Gross margin for the Q2 of 2022 increased to 34% from 28% in the Q2 of 2021. Non-GAAP gross margin for the Q2 of 2022 grew to 34% from 29% in the Q2 of 2021. Operating expenses were RMB 161.6 million in the Q2 of 2022, compared to RMB 190.3 million in the Q2 of 2021.
Research and development expenses were RMB 70.3 million in the Q2 of 2022, representing a 15% year-over-year increase. The increase was primarily due to a higher salary and welfare benefits expenses and rental expenses. Selling and marketing expenses were RMB 60.8 million in the Q2 of 2022, compared to RMB 106.3 million in the Q2 of 2021. Primarily due to the decrease in the promotion and marketing expenses, partially offset by the increase of the salary and welfare benefits expenses. We will evaluate and adjust our marketing strategy and budget based on the business performance, operational needs, and market conditions. General and administrative expenses were RMB 30.6 million in the Q2 of 2022, representing a 32% year-over-year increase.
The increase was mainly due to the increased salary and welfare benefits expenses, estimated litigation compensation related to copyright matters and other professional services. Operating income was RMB 14.1 million in the Q2 of 2022, compared to a loss of RMB 31.6 million in the Q2 of 2021. Non-GAAP operating income was RMB 21.2 million in the Q2 of 2022, compared to a loss of RMB 21.7 million in the Q2 of 2021. Net income was RMB 18.9 million in the Q2 of 2022, compared to a net loss of RMB 29 million in the Q2 of 2021. Non-GAAP net income was RMB 26 million, compared to a non-GAAP net loss of RMB 19.2 million in the Q2 of 2021.
Basic and diluted net income per ADS were CNY 0.37 and 0.36 respectively in the Q2 of 2022, compared to a basic and diluted net loss per ADS of CNY 0.58 in the Q2 of 2021. Non-GAAP basic and diluted net income per ADS were CNY 0.50 in the Q2 of 2022, compared to non-GAAP basic and diluted net loss per ADS of CNY 0.38 in the Q2 of 2021. As of June 30, 2022, we have cash and cash equivalents and restricted cash of CNY 588.1 million. Okay, this concludes all of our prepared remarks today. I will now open the call to questions. Operator, please go ahead.
Thank you. To ask a question, please press * one one on your telephone keypad. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond and then feel free to follow- up with your next question. Once again, if you wish to ask a question, please press * one one on your telephone keypad. Our first question comes from the line of Vicky Wei from Citi. Please go ahead.
管理层早上好，谢谢接受我的提问。我有两个小问题，第一个是想请问管理层，在直播打赏规定实施后，我们管理层在哪些方面是比较关注的？有没有哪些更多的规定我们需要留意的吗？然后我的第二个小问题是我们荔枝在全球化过程中面临的最大的挑战是什么？然后能不能请管理层在战略方面和竞争力方面和大家分享一下呢？谢谢。
问题要翻译一下吗？Emily。
Okay, I will translate.
Okay. Good morning management, thanks for taking my questions. I have two questions. The first one is, which aspects do management focus more in terms of live streaming tipping regulations after implementation? Any more regulations should we be aware of? My second question is, what is the biggest challenge for Lizhi going global or Chinese companies to go global in terms of strategy and competition? Thank you.
谢谢 Vicky。在监管方面，我们一直对行业相关的法律法规保持非常密切的关注。近期我们也注意到了监管部门陆续细化了一些关于产品的功能、运营的规范，还有数据管理这些方面的要求。我们认为这些要求是更加清晰和明确的，它能够规范整个行业，促进整个行业的长期发展，会有更好的网络环境。
Thank you, Vicky. I'll translate for Marco. In terms of the regulations, we have been paying close attention to the relevant policies and the regulations of the industry. We have also noticed that the regulatory authorities have refined some requirements on product functions and operational specifications and data management and other aspects. We believe the clear and more detailed regulations can help promote the industry's long-term development and help create a better network environment.
我们一直以来都是根据最新的政策来及时地自查，确保满足最新的监管的要求。后面呢，我们也是会继续动态来跟进这些监管政策的变化，在各个方面去满足这个合规的要求，确保我们的业务是持续稳健的发展。
We have been carrying out timely self-examination according to the latest policies to ensure that we comply with the latest regulatory requirements. In the future, we will continue to follow- up on the different changes in regulatory policies and meet the compliance requirements in all aspects, and ensure that the sustainable and solid development of our business.
第二个问题就是全球化面临的最大的挑战和战略和竞争的策略。对于所有的中国企业出海来做全球化，我认为挑战和竞争都主要是集中在本地化和人才这两个方面。全球不同的国家地区的文化差异是非常大的。而吸纳更多的了解本地市场的优秀的人才的加入，是实现本地化产品和经营的关键，也是企业在各个市场能够长远立足的根本。所以我们在全球重点的目标市场设立了本地的办公室，并且我们非常积极地招募纯本地的本地化的优秀的人才，搭建本地化的团队，来提升我们在海外市场的研究的洞察能力、产品设计能力和运营能力。
The second question is about the biggest challenges for Lizhi going global or any other Chinese companies to go global in terms of the strategy and the competition. I will translate for Marco. I think for all of the Chinese companies looking to expand overseas, the challenges and competition mainly concern on the localization and talent development. Culture varies between different countries and regions worldwide, so absorbing more excellent talents who understand the local market is the key to achieving product and operational localization. This is also fundamental for companies to lay a solid foundation in various markets. We have set up local offices in key target markets around the world, and actively recruited local talents and build localized teams and enhanced our market research and product design operational capabilities in the international market.
在战略层面，我觉得非常简单，就是我们现在最重要的还是战略的定义，坚定地执行全球化的战略，开展本地化的运营和培养国际化的人才梯队，深入地去洞察各个市场的发展机会和潜力，明确各个阶段的发展的重点，这样呢，就有助于我们在国际业务上去取得突破。
On the strategy front, we think the most important thing is to be determined and then remain committed to firmly executing our global strategy and conduct localized operations, cultivate an international talent pool, develop in-depth insights into the market opportunities and identify development priorities at each different stage may help us achieve breakthroughs in the international business.
我回答的就这些。Thank you。
This concludes Marco's answers.
Thank you.
Here. Our next question comes from the line of Yijiao Chen from TF Securities. Please go ahead. Yijiao, your line is open. Please go ahead.
Okay. Can you hear me?
Yes, we can.
Yes。
非常感谢管理层给的这个提问的机会。我是天风证券的沈奕娇。我先用中文提一下我的问题，接下来我用英文进行翻译。我这里有两个小问题，第一个问题就是，咱们关于咱们这个基本盘，这个音频娱乐方面的，就是2022年的全年，咱们公司对咱们这个基本盘是否会有新的布局，以及对2022年到2023年咱们这个月活和ARPU是否会有更高的展望，以及我们会有哪些举措去继续提高我们这个基本盘的渗透率和客单价。这是第一个问题。第二个问题是，咱们这个车载音频端，因为其实汽车最近这个行业发展得也是比较好，所以我们这个车载音频端目前的进展如何？然后，我们未来预计这个领域的可能会有多大的空间？这是我的两个问题。那我翻译一下。 So I translate my question to English. The first question is, in 2022, does the company have any new plans for audio entertainment?
What's the outlook for the MAU and ARPU in 2022 and 2023? How can we increase our penetration rate and spending level per user? That's the first question. The second question is there an update in our in-car audio business? What forms of cooperation will be adopted? What is the growth potential in the field? Thanks.
感谢奕娇，是第一次提问。对于我们基本盘来讲，我们现在是专注在音频娱乐的业务，我们希望与多元化的产品矩阵这个发展策略为重心，继续去探索更多的市场的机会。我们现在是通过内部孵化更多的产品，丰富我们的音频娱乐的产品矩阵，来吸引核心的用户群体，来扩大整体业务的规模，进一步来提升音频娱乐业务的渗透率。
Thank you, Yijiao Chen. I will translate for Marco Lai for the first questions. Like our fundamental business, currently we focus on audio entertainment business. We continue to focus on our diversified product matrix strategy to explore more market opportunities. By incubating more products internally and enriching the product matrix, we can attract the core user groups, expand the overall business scale, and further improve the user penetration rate of the audio entertainment business.
目前我们的重点会放在音频娱乐端商业转化能力比较高的一些用户群体，持续优化推广的策略，进行精准的获客。此外，通过产品功能的优化以及多样化的一些运营活动，去探索更多的用户的场景，在提升用户参与度的同时，来促进付费用户的转化，提升用户的付费水平，挖掘更多的商业化的潜力。
Our current focus will be on user groups with higher commercialization capabilities in the audio entertainment sector. We will continue to optimize our marketing strategy and execute our precise user acquisition strategy. In addition, through optimizing the product functions and launching diversified operational activities, we think more user scenarios can be explored to promote the paying user conversion, while also improving the user engagement and ultimately enhancing the user spending level and exploring more commercialization opportunities.
Uh,
The second question is about the in-car audio business. In terms of our in-car audio strategy, we are mostly aiming at the long-term market opportunities. Currently, we are more focused on partnering with more auto companies and IOV platforms to deploy the in-car applications in more vehicle models, in order to reach a wider range of user groups and cultivate user habits gradually. Recently, through Huawei's HarmonyOS smart car system and the Xiaomi Quick App platform, we have launched the in-car audio products in Aito and Leapmotor smart vehicles respectively. Our cooperation with those auto companies currently are mainly focused on developing the in-car applications and other audio technology capabilities for the in-car operating systems. On the IOV platform front, our collaborations with them mainly concentrate on content capabilities and quick access applications.
Adopting the multiple approaches to fulfill the diversified needs, we may empower a full spectrum of the in-car audio entertainment scenarios. With the rapid development of IoT technology and the smart in-car platforms, and the audio is one of the best cross terminal medium, we believe there will be a greater growth potential in the future.
Thank you.
Thank you. This concludes Marco's answer.
As a reminder, to ask a question, please press * one one on your telephone keypad. Once again, it's * one one for questions. As there are no further questions, I'll now turn the call back to the company for closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact Sound Group's Investor Relations through the contact information provided on our website at ir.lizhi.fm or The Piacente Group Investor Relations. Thank you.
Thank you. This is a Conference Call. You may now disconnect your line. Thank you.
Thank you.
Thank you.