Earnings Call: Q2 2021

Aug 31, 2021

Hello, ladies and gentlemen. Thank you for standing by, and welcome to the Liju Inc. 2nd Quarter for 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the management's remarks, there will be a question and answer session. But I'll now turn the call over to your host, Efi Kang, Head of Capital Markets for the company. Please ahead. Thank you very much. Hello, everyone, and welcome to Liqing's Q2 2021 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. Chenfang Lu. Management will begin with prepared remarks, and the call will conclude with a Q and A session. As a reminder, this conference is being recorded. In addition, earnings highlights presentation and a webcast replay of this conference call will be available on the IR section of our website at ir.liqui. 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 technically 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, its affiliates, advisors, representatives and underwriters do not undertake any obligation to update these forward looking information, except as required under the applicable law. Please note that Liju's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non GAAP financial measures. Lizhi's press release contains a reconciliation of unaudited non GAAP measures to unaudited GAAP measures. I will now turn the call over to our Founder and CEO, Mr. Marco Lai. Please go ahead. Hello, everyone. Thank you for joining us today. We are very pleased that all aspects of our business maintained robust growth in the Q2 of 2021. We are dedicated to the audio centric globalization strategy and to bring diversified audio products to a broader user base. Our continuous efforts to advance in house technology development, optimize product features and improve user experiences resulted in a steady growth of our user base in the Q2, with total average mobile MAUs reached 60,900,000 and average monthly paying users rose to 494,000, driven by ongoing enhancements in our commercialization capability. Our revenue in the Q2 has reached another record high of RMB RMB559 1,000,000, up 59% year over year. Our solid performance of core metrics during the quarter reaffirmed the effectiveness of our strategy and the increasing efficiency in our execution, underscoring our competitiveness in the online audio market. In the Q2, our audio center UGC community built on the Leech app to appeal to the younger generation, continue to demonstrate high levels of user engagement and interruption. In addition, we have further improved the integration of our prerecorded content division and audio entertainment division and effectively increased user penetration rate of audio entertainment to 14.6% in the Q2 of 2021 from 13.2% in the same quarter last year. This achievement also brings more space to improve paying user conversion, further strengthening our commercialization capabilities in audio entertainment and driving the strong growth in revenue. On the other hand, we have successfully expanded user base to younger and middle aged cohorts in higher tier cities, supported by effective operations on our vertical podcast platform, Leechi Podcast, through innovations on on podcast features and development on multi devices accessibility, we expect to further increase the influence of podcasting and diversify our audio ecosystem. In the Q2, we continue to leverage our live streaming podcast feature to generate diverse content creation opportunities for original podcasters. We have also partnered with several brands and companies to devise exceptional live streaming podcast programs, delivering unique listening experiences to audiences. Audiences. Furthermore, we are working to strengthen our foothold in the in car audio market and expedite the implementation of our in car audio products. These efforts include expanding collaborations with a wide range of living companies and technology platforms and optimizing mobile applications catering to in car user networks, which greatly improved the listening experiences across multiple terminals. We are seeing that users' listening time only to podcast has increased substantially in the second quarter. Turning to our globalization progress, our TI app, an audio based social networking app targeting overseas market, continued to grow rapidly, highlighted by growing user base with MAUs in June rising to more than 3,500,000, representing a 92% increase over average MAUs in the Q1 of 2021. In terms of our operational strategy for Tia, we are committed to improving user engagement and user effectiveness through continuous optimization and integration of product as well as the enrichment of interactive features. In this June, the number of active groups on Kia increased by more than 3 60% from this March, and the number of active chat rooms increased by more than 180% from this March. We are also seeing that amount and diversity of social networking topics and interest groups on the platform are increasingly expanding, bringing more new users to join the platform and effectively enhancing Tia's network effect. Technological empowerment is a crucial driver for our Uyghur's business development. In the Q2, we remain focused on advancing our core technology capabilities. For example, we are striving to make Doremi our in house developed audio technology solution compatible with more in car operating systems and the Internet of vehicles platforms. Our goal is to ensure superior audio quality across different in car systems and satisfy user demand for real time audio interaction. Our AI technology is also driving our overall business development, including enabling a better recommendation mechanism and delivering a personalized audio experience across multiple devices. In the future, we will further refine our core technologies to support and empower our robust business growth. Alongside driving the effective growth and strategic execution of various business, we also actively undertake corporate social responsibility as a content community platform. For example, on the National Disability Day, we released a short documentary film to highlight the stories of audio content creators with physical disabilities who have showcased their vocal talents through creating audio programs titled See the World 3 years on Nichi app. We are also hoping to help young people with physical disabilities to create more value via voices through the influence of our platform. In addition, during the Henan class last month, leveraging the advantages of our voice platform, we launched the various audio content of supporting Hunan through all channels, rallied the power of voices to encourage content creators to publish the emergency rescue measures and promoted psychological counseling content relevant science educational formats. We also showed our support and respect for Rescue staff through various content features, delivering the heartwarming initiatives to a wider range of audiences through voice. In summary, we are pleased to see that Lijia's global business continued to experience strong growth in the quarter of this year, laying a solid foundation for our long term growth. Going forward, we will remain steadfast in our commitment to globalization strategy, further promoting the development of our domestic business and unleashing the commercialization potential through effective operating strategies. We will further advance our podcast business development and explore diverse audio applicable usage scenarios, bringing innovative forecast experiences to a broader user base. In overseas market, we will continue optimizing our audiosocial products, providing an even better social networking experience to our users. Meanwhile, we will progressively explore various overseas markets and create more possibilities for the long term development of our global business. Furthermore, we are committed to building a more competitive audio ecosystem to achieve sustainable long term growth as we continue to advance our in house core technology capabilities. Thanks, everyone. With that, I will now turn the call over to our COO, Mr. Zhe Long Li, who will discuss our business development in more details. Hello, everyone, and thank you for joining us today. As Marco discussed, in the Q2, we maintained strong growth momentum with a solid set of financial and operating results. I am happy to share with you a bit more on our operating achievements. 1st, in terms of our audio community on each app, our consistent efforts in optimizing audio entertainment products and audio creation tools improved overall user experiences, increased user effectiveness and stimulated user engagement in audio content creation. During the Q2, users monthly average total interactions on the platform reached 3,400,000,000. As of June 30, cumulative pieces of audio content uploaded to our platform reached RMB 293,000,000. In the audio entertainment division, we conducted various operational campaigns to encourage content creators to participate in audio entertainment creation, which in turn attracted more users to join real time audio interruptions. This has further unleashed our audio entertainment business commercialization potential, reflected by our growing audio entertainment user penetration rate, which drives the paying user conversion. On the other hand, based on our effective user positioning, we continue to develop market leading content categories catering to the younger generation through strengthened content ecosystem and content operation strategy towards higher commercialization potential, such as ACG centric interplay sessions and the emotional company programs, we have effectively increased the user willingness to pay and further enhanced our commercialization capability in audio entertainment division. In terms of our global business, as an audio social platform targeting younger generation, Kia keeps focused on optimizing product features to meet various social needs of users based on younger generations' interest in the harvest. In March 2021, we launched the kiosk group function, which helps users with common interests be connected, enjoy real time audio interactions and become friends on our platform. The number of active groups on the platform has significantly increased. In addition, we introduced many games such as Ludo and Sweet Rush into live chat rooms and launched a game sharing function in conjunction with the theme of gaming. MDAS promotes effective communication interaction among users and meet more user demands. Our continuous efforts in our product optimization effectively improved the user experience and user engagement, and we are gaining a growing number of new users from spontaneous invitations from friends on Tia. As of June 30, the number of Tia based user friendship connections increased by 120% from this March. Looking ahead, we will remain committed to executing our globalization strategy as we believe that the development of audio based social networking business is able to bring more growth potential for the overall business. In terms of the development of our forecast business, we are committed to differentiating our competitive advantages through innovation of features and forecast content, including a series of live streaming forecast programs to increase user activity and interaction. For example, in June, in collaboration with the Araya Theater Festival, we launched the migratory bird's live radio project, which featured a 300 hour non stop audio live streaming for the first in China's online audio industry. Built on a mix of live streaming dialogues, voice recordings and outbound dialing interactions, this pioneering live streaming session comprehensively showcased the communication and theater creation activities of 300 theater lovers and practitioners. These events spotlighted our horizon broadening approach to merge live streaming feature into podcast. Additionally, we leverage with this prestigious session to create highlight edition and inclusive podcast sessions available on our platform. During the Q2, we also hosted the Voices of Technology and Science Week online forum, China's 1st live streaming podcast forum, same to own science and technology. This event featured a number of renowned speakers discussing a variety of trending topics through live streaming forecast, greatly stimulating interactions among forecast listeners. In addition to our innovations in forecast content and forecast features, we have also formed a more strategic collaboration to increase the popularity and availability of forecasts through multiple terminals, recently in cooperation with more leading automakers and Internet of vehicle platforms, including WM Motor, Mi Auto, Tencent Mi Scenario and Partio IOV platform, we worked to make V2 forecast accessible in more vehicles, providing a diverse audio experience to a broader user base. At the same time, we continuously optimize our product features to ensure a better in color listening experience. We introduced the car mode for mobile app, enabling users to enjoy personalized podcast content supported by AI powered content recommendation distribution mechanism with only one click. We believe that our in car audio solutions and mobile apps can build synergies encompassing podcast content across multiple devices spanning a variety of usage scenarios to bring podcast offerings to a wider range of users and further enhance the influence of podcast in the industry. Going forward, we remain committed to our mission and to driving the development of our worldwide business to build Liqing into a leading global audio platform through our continuous efforts on audio innovation and the technology advancements. Thanks, everyone. With that, I will now turn the call over to our acting CFO, Ms. Shengfeng Lu, who will discuss our financial results in more detail. Thank you, our operational and financial performance for the second quarter continued to demonstrate our strong growth trajectory and strengthened our commercialization capabilities. We're also pleased to see gross margin, especially of 400 basis points year over year, alongside our strong top our operational and technological capabilities to bolster our global audio ecosystem and deliver long term sustainable growth. In the Q2, our total net revenue were RMB559,300,000, representing an increase of 59% from RMB 315,900,000 in the Q2 of 2020, mainly attributable to our growing user base and increase in the average spending of paying users in our audio entertainment products. And our cost of revenue was RMB RMB 400,500,000 in the Q2 of 2021, representing an increase of 51% for RMB 265 point 1,000,000 in the Q2 of 2020. The year over year increase was mainly due to our increase in revenue sharing fees to our content creators, payment handling costs and bandwidth costs, which are generally in line with our growth business growth. Our gross profit was RMB 100 and million in the Q2 of 2021, representing an increase of 85% from RMB 85,700,000 in the Q2 of 2020. Non GAAP gross profit was RMB161,900,000 in the Q2 of 2021, representing an increase of 79% year over year. And our gross margin for the Q2 of 2021 increased to 28% from 24% in the Q2 of 2020. Non GAAP gross margin for the Q2 of 2021 grew to 29% from 26% in the Q2 of 2020. Operating expenses increased by 72% year over year to RMB119,300,000 in the Q2 of 2021. Research and development expenses were RMB RMB60.9 million in the Q2 of 2021, representing a year over year increase of 11%, primarily due to the increase of salary and welfare benefit expenses related to an increase in the number of our research and development staff. Selling and marketing expenses were RMB 106,300,000 in the Q2 of 2021, representing a year over year increase of 241%, primarily due to our increased investment in branding and marketing for our products and brand name. General and administrative expenses were RMB 23,100,000 in the Q2 of 2021, representing a year over year decrease of 7%. The decrease was mainly due to the decrease in other professional service fee, partially offset by the higher salary and welfare benefits expenses. Operating loss was RMB 31,600,000 in the Q2 of 2021, up by 26% from RMB 25,000,000 in the Q2 of 2020. And non GAAP operating loss was RMB 21,700,000 in the Q2 of 2021 compared to RMB 11,200,000 in the Q2 of 2020. Net loss was RMB 29,000,000 in the Q2 of 2021, up by 32% from RMB 22,000,000 in the Q2 of 2020. And non GAAP net loss was RMB 19,200,000 compared to RMB 8,200,000 in the Q2 of 2020. Basic and diluted net loss per ADS were RMB 0.58 in the Q2 of 2021 compared to RMB 0.48 in the Q2 of 20. Our non GAAP basic and diluted net loss per ADS were RMB0.38 in the Q2 of 2021 compared to RMB0.18 per ADS in the Q2 of 2020. As of joint cities 2021, we had cash and cash equivalents, restricted cash as well as short investments of RMB 4,84,700,000. Now this concludes all of our prepared remarks today. We'll now open the call to questions. Operator, please go ahead. Thank you. Ladies and gentlemen, we'll now begin that question and answer session. But we have a question on the queue. So I'll first go to Vincent Yu from Needham and Company. So please ask your question, Vincent. Thank you. Thank you, Vincent, for taking my question and congrats for the strong quarter results. I have three questions. The first question is, I think one in terms of like on the regulation side. So have we been communicating with regulators on the rollout of regulation on the overall streaming industry? Can management give us a sense of company's expectation and the impact on leisure's operational results? And the second question is on the apps themselves. So can management share with us how big is the user base who use LiJi or do you use LiJi podcast app in the car and the overall size of LiJi podcast app? And the third question is, does the company see any material change in user behavior for Tia app as the economy is like continue to reopen and is like the streaming hours have been changed or decreased or increased or maintained like can we get any sense? So I will translate for myself into Mandarin. So I will translate for Marco. So Marco will answer the first question and our COO, Mr. Zaloni, will answer the other two questions. So Marco's answer is that like for recent years, the regulatory authorities have always attacked a great importance to regulating the online entertainment industry, including the live streaming industry. Title regulations may have some impacts and put pressures on some companies' business in the short term, but we do believe that some of the regulatory policies can standardize relative business operations, which is good for the long term sustainable development of the entire industry. As an online audio company, we have always prioritized regulatory compliance and have been proactively and effectively communicating with regulators to have an accurate understanding of the relevant guidelines and requirements. In the last few quarters, we also have reported some information, and we have came out some solutions regarding to the regulatory policies. Meanwhile, we are earnestly conducting self examinations of our internal compliance and data security measures to ensure that our business operations comply with the regulation. Based on our years of experiences in the industry, I think we have already have a relatively sound mechanism to meet the regulatory requirements. In the long term, the online audio industry still has tremendous growth potential, and Li. G is committed to promoting stable and healthy development. I will translate for Mr. Zhe Long Mi for the second and third questions. So for the second question, in terms of our in car audio strategy, we are actually working to expand collaborations with a wider range of leading companies to make our in car audio product accessible in more vehicles and reach a broader user base. We have made significant progress recently in our cooperations with auto companies and have niche podcast launched on more in car audio operating systems. As of now, we have established collaborations with a total of 14 automakers. Besides those companies we have mentioned earlier, our in car audio products have also been launched on vans and Audi's in car operating systems through the IOV platform. Midu podcast has been operating for over half a year and now has performed well through our podcast innovations like live streaming podcast and inclusive podcast episodes, we have effectively improved the average user time spent on the podcast. In the Q2 of 2021, the average daily time spent per user on the podcast increased by around 10 minutes compared with the previous quarter, which also shows the effectiveness of our operational strategies and the improved user stickiness. In the future, we will continue to boost the development of leisure podcast and our in car audio business and increase the popularity of leisure podcast by integrating into more in car systems. We will also continue to enrich each podcast content offerings to deliver more interesting content, meet users' demand with innovative podcast features and improve user stickiness. But at this moment, the user base for the in car audio scenario and of the leisure forecast is relatively small compared to our overall user base. We will share more data when the business grows to a certain scale. The third question is about the user behavior for the Kia app. Although most social activities are gradually returning to normalcy, but we are still seeing a lot of lasting changes in people's lifestyle brought by the COVID-nineteen pandemic. For example, online entertainment and online social networking are gaining widespread popularity, and Kia maintained its strong growth momentum in the 2nd quarter. As we continue to optimize TIA's product features, Tia's user activeness continued to increase, reflected by an increase in the number of active chat rooms and the number of user friendship connections. Also, the user time spent on Tia also improved compared to the previous quarter. From a long term perspective, we believe the online social networking is becoming a trend in the way people socialize. The integration of audio into social networking activities provides users a differentiated form of social networking from an innovative perspective and satisfying more of their social networking needs. Going forward, we will continue to optimize TS product features, connecting more users through voices. This concludes the answers for Smedes' questions. Thank you. Your next question comes from the line of Vicky Wei from Citi. So please ask your question, Vicky. So good morning, management. Thanks for taking my questions and congrats on the solid quarter. So will management share some color about revenue sharing ratio with host as industry peers continue to invest in audio live streaming? Thank you. Thanks for the question from Vicky. Actually, we have diverse revenue sharing policies for content creators across different business divisions at different stages. In the Q2 of this year, we achieved strong revenue growth while we're also progressively adjusting our revenue sharing structure. In this quarter, our overall revenue sharing for content creators on our platform accounted around 65% of total revenue, representing a decline of about 4 percentage points year over year, which also effectively improved our gross margin. And looking ahead, we will implement a comprehensive set of measures to cultivate our content creators and keep a balance between the income growth of content creators and improvement of our profit margin by driving the top line growth. For the content creators, we will adopt various operational strategies, including traffic and creation support, attractive incentive policies and AI driven content recommendations, among others, to enable content creators to attract more followers in wider popularity and increase their success on our platform. On the user side, we will continue to focus on improving user engagement, promoting paying user conversion and increased users' willingness to pay to increase our overall revenue. I believe with our platform remains a good growth momentum and our creators will experience a corresponding increase in income. And subsequently, this will allow us to further refine our revenue share restructure. In addition, structure. In addition, we will continue to innovate new business model and explore more overseas markets with growth potential to create new opportunities for our long term and sustainable growth with higher profitability. Next. Thank you. There are no further questions now. So I'd 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 Liqiu's Investor Relations through the contact information provided on our website at ir. Liqiu. Fm or the Piante Group Investor Relations. Thank you. Ladies and gentlemen, that does conclude today's call. Thank you again for participating. You may now all disconnect. Thank you.