Lizhi Inc. (NASDAQ:LIZI) Q1 2023 Earnings Call Transcript May 25, 2023

Lizhi Inc. beats earnings expectations. Reported EPS is $0.16, expectations were $-0.05.

Operator: Hello ladies and gentlemen! Thank you for standing by for Lizhi Inc.’s, First Quarter 2023 Earnings Conference Call. At this time all participants are in 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 like to turn the call over to your host, Effy Kang, Head of Capital Markets for the company. Please go ahead.

Effy Kang: Thank you very much. Hello everyone! And welcome to Lizhi Inc.’s first quarter 2023 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, Mr. Chengfang Lu. Mr. Li and Mr. Lu will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, our earnings highlights 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 discussion 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, its 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 a 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.

Zelong Li: Hello everyone and thank you for joining Lizhi Inc.’s first quarter 2023 earnings conference call. While the first quarter of 2023 marked a fresh start, we remain committed to building a more competitive audio-based ecosystem, enriching our diversified program matrix, further unleashing our business commercialization potential, and propelling our global business expansion. In the first quarter, the company’s revenue increased by 22% year-over-year to RMB 631 million. Our total average mobile MAUs amounted to 49.6 million, and our average monthly paying users totaled 471.5 thousand, powered by our core technologies and versatile technology platforms, and supported by our effective operational strategies, our net income surged by 54% sequentially, and 194% year-over-year to RMB48.3 million.

In the first quarter we continued innovating and upgrading our audio entertainment product features and functions, boosting our audio entertainment’s commercialization efficiency. By launching an array of highly interactive online modules, we encouraged users and content creators to interact, aiming to strengthen connections between them, as well as drive up user participation and engagement. Meanwhile, we continued extending our core content categories, bringing differentiated audio entertainment experiences to our users through innovative features. Leveraging dynamic adjustments to our operations and marketing strategies, we also effectively improved the core users’ willingness to pay. With regard to our content creator ecosystem, we remain focused on cultivating the creator experience, refining operations and continuously improving the creation tools available to them, to help them grow and flourish on our platform.

By implementing a creator partnership mechanism for quality content creators, we have attracted more creators to generate content while boosting their engagement and creative output. Furthermore, through our refined operations management and diversified themed activities, we succeeded in giving full play to the value creativity of our quality content creators. For example, we launched the themed activities such as special sessions featuring quality hosts and linked them to trending topics in order to enhance interaction in the audio-centric community, helping our content creators attract more followers and generate income. Regarding our global business, we remain committed to relentlessly approach our innovation by applying our core technologies.

We aim to build an AI chatbot platform and ultimately promote further development of our global business. This February, we launched a chatbot module in our global audio-based social networking product, TIYA App, leveraging the GPT model. By the end of March, we further optimized the module and rolled out an upgraded version of the MY AI FRIEND chatbot to better enrich the app’s online companionship experience. The newly unveiled MY AI FRIEND chatbot is designed for users to create their ideal online friends and have a more tailored AI-enabled chat experience. Users may create dedicated AI FRIEND’s and generate tailored profiles by leveraging the customization functions of MY AI FRIEND’s. With the launch of the upgraded version, we are pleased to see that more users are willing to share MY AI FRIEND with their peers, enhancing new app engagement and significantly improving the usage time.

Building upon the company’s strong technical capabilities in the audio field, we recently tested MY AI FRIEND’s voice function, aiming to provide users with a more differentiated AI voice chat experience. Going forward, we will further optimize and upgrade MY AI FRIEND features, as well as enrich our AI chatbot usage scenarios, aiming to effectively integrate our AI chatbot into our original social networking protocols and provide users with more valuable, emotional support and companionship. As we pursue the development of our global capabilities, we always follow the principle of establishing localized operations across our globalized organization. As such, we have effectively enhanced our on the ground business operations by establishing localized operational management teams.

Technology-wise, we have made progress with the R&D of self-developed core technologies to fully power our product innovation, building upon the company’s technology capabilities, strong expertise in the field of voice-based social networking and online companionship, and years of operational experience, coupled with technological breakthroughs in ASR, TTS and other voice AI areas. We intend to further explore the application of audio-based AI chatbots. We also remain committed to bringing a more differentiated online companionship experience to our users. In summary, Lizhi achieved solid growth in the first quarter of 2023 across all business segments. Looking ahead, we will continue to power product innovation through technology development while actively advancing our global positioning.

Thank you all. With that, I will now turn the call over to our Acting CFO, Ms. Chengfang Lu, who will discuss our financial results in more detail.

Chengfang Lu: Thank you, Zelong, and hello everyone. We are delighted to see that in the first quarter of 2023 our revenue increased by 22% year-over-year to a new high of RMB631 million. In addition, we achieved ongoing profitability with net income of RMB48.3 million, up 54% sequentially and 194% year-over-year. Looking ahead, we will continue to improve our operating efficiency. Now, I’d like to provide a brief overview of our financial results for the first quarter of 2023. In the first quarter, our total net revenue through RMB631 million represented an increase of 22% year-over-year, primarily due to the growth in the average user spending on our audio entertainment products, driven by diversified themed activities and optimization of marketing strategies.

Cost of revenue was RMB434.6 million in the first quarter, representing an increase of 25% year-over-year, mainly attributable to an increase in revenue sharing fees to our content creators, payment handling costs and bandwidth costs as we expanded our business, partially offset by a decline in other miscellaneous costs. Gross profit was RMB196.4 million in the first quarter of 2023 compared with RMB168.1 million in the same period of last year. Non-GAAP gross profit was RMB198.2 million in the first quarter of this year, compared with RMB170.7 million in the first quarter of last year. Gross margin for the first quarter of 2023 was 31%, compared with 32% in the same period of last year. Non-GAAP gross margin for the first quarter of 2023 was 31% compared with 33% in the same period of last year.

Operating expenses were RMB153.7 million in the first quarter of 2023, compared with RMB153.5 million in the same period of last year. Research and development expenses were RMB71.9 million in the first quarter of 2023, compared with RMB71.1 million in the first quarter of last year, primarily due to increasing salary and welfare benefits expenses and share-based compensation expenses, partially offset by a decline in expenses related to research and development services provided by third parties. Selling and marketing expenses were RMB58.8 million in the first quarter of 2023, compared with RMB60.0 million in the first quarter of last year, primarily attributable to the decrease in branding and marketing expenses, partially offset by the increased salary and welfare benefits expenses.

The company will monitor our discretionary advertising and promotion expenses and adjust accordingly depending on market conditions. General and administrative expenses were RMB23.0 million in the first quarter of 2023, compared with RMB22.4 million in the same period of last year, mainly driven by the increase in provisions for litigation contingencies and professional service fees, partially offset by a decrease in other miscellaneous expenses. Operating income was RMB42.7 million in the first quarter, compared to RMB14.6 million in the first quarter of last year. Non-GAAP operating income was RMB52.9 million in the first quarter of 2023, compared with RMB23.4 million in the same period of last year. Net income was RMB48.3 million in the first quarter of 2023, compared with RMB16.4 million in the same period of last year.

And non-GAAP net income was RMB58.5 million in the first quarter of 2023, compared with RMB25.2 million in the same period of last year. Basic and diluted net income per ADS were RMB0.93 and RMB0.92 respectively in the first quarter of 2023 compared with RMB0.32 in the same period of last year. Non-GAAP basic and diluted net income per ADS were RMB1.12 and RMB1.11 respectively in the first quarter of 2023, compared with RMB0.49 in the first quarter of last year. As of March 31, 2023 we have cash and cash equivalents, short-term investments and restricted cash of RMB731.3 million. Okay, this concludes all of our prepared remarks today, and I will now open the call for questions. Operator, please go ahead.

Q&A Session

Operator: Thank you. Now the first question comes from the line of Vicky Wei of Citi. Please go ahead.

Vicky Wei: Good evening, management. Thanks for taking my question. I have two small questions. One is, how should we think of the monetization scale of overseas products in this year in the investment stage? And my second question is, does management notice any change of regulatory environment on the audio live streaming sector? Thank you.

Marco Lai : Thank you, Vicky. The first question is answered by Marco and I will translate for him. The first question of Vicky is about the monetization scale of the overseas products. Regarding the monetization of the overseas products, we have actually launched certain monetization models in some of those products, and mostly subscription models for now. Users can access the value-added services with the subscription. And currently we are still in the early stage of the monetization testing. So based on user feedback and market research, we will continue optimizing the monetization models, and including the revenue-generating functions and the subscription services. We expected to see a smaller proportion of the overseas revenue scale this year and there are still some uncertainties.

And generally our overseas business is still in its early stage, and we plan to make further investments in marketing and localized operations and we will continue to optimize our products and validate our business models. The second question is about the regulatory environment in the live-streaming sector. Regarding the industry regulations, we have noticed that some live-streaming peers were facing some regulatory monitoring recently, and we have noticed that the regulatory efforts have been strengthened with stricter standards and regulations. So for this, we will reinforce the overall compliance management, including the content safety and security, and the management of internal systems, etc. Ensuring the content safety and security is actually our top priority.

So we will conduct regular self-examinations in accordance with the latest policies to meet the overall compliance requirements.

Operator: . If there are no further questions, now I’d like to turn the call back – I beg your pardon. One moment for the next question. We have a question from the line of Serena Lee from China Securities. Please ask your question.

Serena Lee: . Thanks for taking my question and shall the management share more about the progress of the overseas business, including operational level and some of the user matrix, and as well as the outlook for the overseas business for the full year? Thanks.

Marco Lai : Thank you. . Our overseas business is steadily developing and on the product side, we have been focused on user experience optimization and the function upgrades and iterations. Since the launch of MY AI Friend chatbot in the TIYA App in the first quarter of this year, we have noticed the increase in user engagement. And currently we are continuously enhancing the relevant functions, including the recent launch of the multiple preset AI characters to provide users with an enriched online companionship experience. We are also working on iterations of the voice-based functions and users can now experience the latest upgrades on the TIYA App. We have launched the monetization models for commercialization. We will keep optimizing these models for effective validation.

And additionally, we are focusing on building our global capabilities by improving our international teams to support more localized product operations and marketing and other aspects. So we will also step up investment in our overseas business, but it will be in line with the business growth. And in general, it will remain within a well-managed range. Okay, thank you.

Operator: Thank you. As there are no further questions, now I’d like to turn the call back to the company for closing remarks.

Effy Kang: Well, thank you once again for joining us today. If you have any further questions, please feel free to contact Lizhi’s Investor Relations through the contact information provided on our website at ir.lizhi.fm or The Piacente Group Investor Relations. Thank you.

Operator: Thank you. This concludes the conference call. You may now disconnect your line. Thank you.