iQIYI Inc (IQ) 2022 Q3 法說會逐字稿

Thank you for standing by, and welcome to the iQIYI Third Quarter 2022 Earnings Conference Call. (Operator Instructions)

感謝您的支持，歡迎來到愛奇藝 2022 年第三季度財報電話會議。 （操作員說明）

I would now like to turn the conference over to Ms. Chang Yu, Director of the company. Please go ahead.

我現在想把會議轉交給公司董事常宇女士。請繼續。

Thank you, operator. Hello everyone and thank you for joining iQIYI’s Third Quarter 2022 earnings conference call. The Company's results were released today and are available on the Company's Investor Relations website at ir.iqiyi.com. For the call today, our CEO Mr. Yu Gong will give a brief overview of the Company’s business operations and highlights, followed by our CFO, Mr. Jun Wang, who will go through the financials.

謝謝你，運營商。大家好，感謝您參加愛奇藝 2022 年第三季度財報電話會議。公司業績於今天發布，可在公司投資者關係網站 ir.iqiyi.com 上查閱。在今天的電話會議上，我們的首席執行官龔宇先生將簡要介紹公司的業務運營和亮點，隨後我們的首席財務官王軍先生將介紹財務情況。

After the prepared remarks, the senior management team will join Mr. Gong and Jun in the Q&A session. Before we proceed, please note that the discussion today 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 are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. iQIYI does not undertake any obligation to update any forward-looking statement except as required under applicable law.

在準備好的發言後，高級管理團隊將與龔先生和君先生一起參加問答環節。在我們繼續之前，請注意今天的討論將包含前瞻性陳述，這些陳述是根據 1995 年美國私人證券訴訟改革法案的安全港條款作出的。前瞻性陳述受風險和不確定因素的影響，可能導致實際結果與我們目前的預期存在重大差異。潛在風險和不確定性包括但不限於我們向美國證券交易委員會提交的公開文件中概述的風險和不確定性。除適用法律要求外，愛奇藝不承擔任何更新任何前瞻性陳述的義務。

With that, I will now turn the call over to Mr. Gong. Please go ahead.

有了這個，我現在將把電話轉給龔先生。請繼續。

Hello, everyone. I'm very pleased to take this opportunity to report on our progress in the third quarter and share our views on the business.

大家好。我很高興藉此機會報告我們在第三季度的進展並分享我們對業務的看法。

Through efforts in the first three quarters this year, iQIYI has completed an iconic turnaround, with business performance far exceeding the targets we set at the beginning of the year. There are two parts to this iconic turnaround: First, we have been growing the non-GAAP operating profit for four consecutive

通過今年前三季度的努力，愛奇藝完成了標誌性的翻身仗，經營業績遠超年初設定的目標。這一標誌性的轉變有兩個部分：首先，我們連續四年實現非 GAAP 營業利潤增長

quarters, starting from Q4 last year. And for the first three quarters this year, we achieved nearly RMB 1.2 billion in non-GAAP operating profit, a sharp reversal from the operating loss of RMB 2.5 billion over the same period last year. This non-GAAP operating profit in Q3 alone exceeded RMB 500 million. Meanwhile, we generated positive operating cash flow for two consecutive quarters.

季度，從去年第四季度開始。今年前三季度，我們實現了近 12 億元人民幣的非美國通用會計準則營業利潤，大幅扭轉了去年同期 25 億元人民幣的營業虧損。僅第三季度的非美國通用會計準則營業利潤就超過了 5 億元人民幣。同時，我們連續兩個季度產生了正的經營現金流。

Second, our market leadership remains unchallenged, and our market share in September actually hits historical high on the content side. According to enlighten data, we remained No.1 in terms of effective video views for our exclusive dramas, more than our competitors in second and third place combined. As for the mobile user metrics side, we were also No.1 across core

第二，我們的市場領導地位沒有受到挑戰，我們9月份在內容方面的市場份額實際上創下了歷史新高。根據啟迪數據，我們的獨播劇視頻有效觀看量保持第一，超過第二名和第三名的競爭對手的總和。至於移動用戶指標方面，我們在核心領域也排名第一

metrics, including user base, user engagement and user stickiness. Our subscriber base has grown from 95.6 million on June 30th to 106.2 million on September 30th, representing a net addition exceeding 10 million.

指標，包括用戶群、用戶參與度和用戶粘性。我們的用戶群已從 6 月 30 日的 9560 萬增長到 9 月 30 日的 1.062 億，淨增超過 1000 萬。

How did we largely improve financial performance while gaining market share? The key is our long-term commitment to original content. We are glad to see that the original content has become a main contributor to our content supply. Among the drama, we launched in Q3, 65% were original content, a historic high. Meanwhile, the hit ratio of our original content improved significantly. As many of you know, iQIYI’s popularity index is an influential indicator of content and popularity. Of the 6 blockbuster dramas with a popularity index of over 10,000

我們如何在獲得市場份額的同時大幅改善財務業績？關鍵是我們對原創內容的長期承諾。我們很高興看到原創內容已經成為我們內容供應的主要貢獻者。在我們第三季度推出的劇中，65%是原創內容，創歷史新高。同時，我們原創內容的點擊率大幅提升。眾所周知，愛奇藝的人氣指數是衡量內容和人氣的重要指標。 6部熱度指數過萬的爆款劇

in our history, we launched 4 this year, and 2 in Q3, both are original titles.

在我們的歷史上，我們今年推出了 4 個，第三季度推出了 2 個，都是原創遊戲。

Hundreds of millions of users binge on our original content blockbusters, which drive up user base and a market share, and translate into the huge improvement in our financial results, from loss to major profitability in a single year. Behind

數以億計的用戶狂歡我們的原創內容大片，這推動了用戶基數和市場份額，並轉化為我們財務業績的巨大改善，在一年內從虧損到主要盈利。在後面

these titles is our unique approach to content production and operation, which is our core competitive edge. As such, our iconic turnaround is very difficult for others to replicate, since it is based on our years of expertise and extensive

這些片頭是我們獨特的內容製作和運營方式，這是我們的核心競爭力。因此，我們標誌性的轉變很難被其他人復制，因為它是基於我們多年的專業知識和廣泛的

library of original content.

原始內容庫。

With original content as the key to our success, we will continue to execute our "Calm Growth” strategy. This means seeking value growth points while ensuring overall operating efficiency, enhancing content investment and marketing spending in an appropriate manner. With this strategy, we will continue to provide users with appealing content and superior services, and further drive the healthy developments of our business

以原創內容為製勝之道，我們將繼續執行“Calm Growth”戰略，即在保證整體運營效率的同時尋求價值增長點，適度加大內容投入和營銷支出。通過這一戰略，我們將繼續為用戶提供有吸引力的內容和優質的服務，進一步推動我們業務的健康發展

Now let’s go through the detailed performance of our business segments. Starting with membership services.

現在讓我們來看看我們業務部門的詳細表現。從會員服務開始。

Membership services have always been our most important business segment. We are determined to roll out strategies and allocate resources to support the continuous growth of our membership business. The average daily number of total subscribers in Q3 was 101 million, a net gain of 2.7 million compared with Q2. September was strong in particular. The number of subscribers at the end of September surpassed 106 million, grew by over 10 million compared to June 30th and over 2.6 million compared to last September.

會員服務一直是我們最重要的業務板塊。我們決心推出戰略並分配資源以支持我們會員業務的持續增長。第三季度日均總用戶數為1.01億，較第二季度淨增270萬。九月尤為強勁。 9月末用戶數超過1.06億，較6月30日增加超過1000萬，較去年9月增加超過260萬。

We are happy to see that even after summer vacation ended, subscribers continued to grow in September for the first time in the past four years, and the average daily subscribers of this September also reached its highest level compared to all the

我們很高興地看到，即使在暑假結束後，9 月份的訂閱人數也出現了 4 年來的首次增長，而且今年 9 月份的日均訂閱人數也創下了歷年以來的最高水平。

past Septembers. Based on our latest subscriber numbers, the strong momentum continues. Such success was mainly driven by premium content, indicating that users still have strong appetite in paying for excellent story telling.

過去的九月。根據我們最新的訂戶數量，強勁勢頭仍在繼續。這種成功主要是由優質內容推動的，表明用戶仍然有強烈的付費意願為優秀的故事講述付費。

Our core competitive edge lies around the ability of consistently supplying high quality content, discover and produce exceptional original content. Meanwhile, we strategically emphasized on bringing more privileges to members across wider content categories, which led to improved monetization ability of our subscriber base.

我們的核心競爭優勢在於始終如一地提供高質量內容、發現和製作卓越原創內容的能力。同時，我們在戰略上強調為更廣泛內容類別的會員提供更多特權，從而提高我們訂戶群的貨幣化能力。

One important point to note is that the original content has become a major contributor to our membership revenue. In Q3, the top 3 revenue contributors were all original dramas, namely: Love Between Fairy and Devil, Chasing the Undercurrent and The Heart of Genius. Our multi-season variety show, The Rap of China 2022 also adopted earlier access for subscribers, and ranked among the top 5 revenue contributors for the quarter.

需要注意的重要一點是，原創內容已成為我們會員收入的主要貢獻者。 Q3收入貢獻前三的均為原創劇集，分別是：《仙魔之戀》、《暗流追擊》和《天才之心》。我們的多季綜藝節目《中國新說唱 2022》也採用了提前訂閱的方式，並躋身本季度前 5 名收入貢獻者之列。

On a separate note, membership services revenue was slightly below our expectation in the third quarter. This was mainly driven by three factors: first, the temporary decline in consumer sentiment in May, June and July due to pandemic resurgence; second, the delay of certain key dramas; and third, the significant reduction of marketing spending as part of our business stress test.

另一方面，會員服務收入在第三季度略低於我們的預期。這主要受三個因素驅動：一是疫情捲土重來導致5月、6月和7月消費者信心暫時下降；二是部分重點劇集延期。第三，作為我們業務壓力測試的一部分，營銷支出大幅減少。

Starting from the second half of August, we successfully reversed the trend with a series of premium content releases including Love Between Fairy and Devil, Chasing the Undercurrent, and Thousand Years For You. Also, the reasonable increase in marketing spending and recovery in consumer sentiment also contributed positively to strong growth in subscriber numbers.

從8月下半月開始，我們成功扭轉了這一趨勢，推出了《仙魔之戀》、《追逐暗流》、《為你千年》等系列精品內容。此外，營銷支出的合理增長和消費者信心的恢復也對用戶數量的強勁增長做出了積極貢獻。

As a result, this September marked as the strongest September in our history. This means, the strong performance of our membership business was not fully reflected in our Q3 results. In Q3, our monthly ARM continued to grow annually, but had small dip sequentially. We offered promotional discounts during summer season to encourage more users to experience our service at a relatively lower price point. We believe the value created by these subscribers will be reflected in the future.

因此，今年 9 月標誌著我們歷史上最強勁的 9 月。這意味著，我們會員業務的強勁表現並未完全反映在我們第三季度的業績中。在第三季度，我們的每月 ARM 繼續每年增長，但連續小幅下降。我們在夏季提供促銷折扣，以鼓勵更多用戶以相對較低的價格體驗我們的服務。我們相信這些訂戶創造的價值將在未來得到體現。

Moving on to content strategy and performance. In the past three quarters, we achieved significant results in improving both quality and efficiency. Even though we launched fewer titles than last year, we were able to generate more premium works. The performance of our dramas was outstanding in Q3, especially for original dramas, as we had big improvement in areas such as

繼續內容策略和性能。過去三個季度，我們提質增效成效顯著。儘管我們推出的遊戲比去年少，但我們能夠製作出更多優質作品。我們的劇在第三季度的表現非常出色，尤其是原創劇，因為我們在諸如

content supply, revenue contribution, success rate, and word of mouth.

內容供給、收入貢獻、成功率、口碑。

One of the best ways to understand the success of our content is to understand our commitment to the original content strategy that we set long ago. So, our performance during the quarter was no accident, and is replicable. Our investments in original content over the past years have been productive and bearing fruits. I’d like to share some data: among major dramas launched in Q3, original dramas accounted for 65%, the highest in our history.

了解我們內容成功的最佳方式之一是了解我們對很久以前製定的原創內容戰略的承諾。因此，我們在本季度的表現絕非偶然，而且是可以復制的。過去幾年，我們對原創內容的投資卓有成效並取得了成果。分享一個數據：Q3上線的重頭劇中，原創劇佔比65%，創歷史新高。

Meanwhile, the success rate for original content have also increased. Two dramas broke the popularity index of 10,000 in Q3, with 2 more dramas breaking 9,000 score. All four were original content.

同時，原創內容的成功率也有所提高。 Q3兩部劇熱度破萬，另有兩部劇破9千。這四個都是原創內容。

This breakthrough in original content was driven by the unique and effective content methodology we established, which runs through processes from content creation and production to post-broadcasting, powered by a strong team of professionals and supported by a mature and highly efficient operating

原創內容的突破源於我們建立的獨特且有效的內容方法論，該方法論貫穿從內容創作、製作到後期播出的整個過程，由強大的專業團隊提供支持，並由成熟高效的運營支持

mechanism

機制

First, we focused on improving the content creation and production qualities of our in-house studios. We also have sophisticated supporting teams with highly experienced professionals across different functions backing these studios

首先，我們專注於提高內部工作室的內容創作和製作質量。我們還擁有先進的支持團隊，這些團隊由經驗豐富的不同職能專業人士組成，為這些工作室提供支持

through the entire process.

通過整個過程。

Second, we have established a mature and highly efficient mechanism running through the whole process, enabling highly efficient decision-making, strict quality controls and optimal content scheduling. The key to this mechanism is a profound understanding of the content industry as a whole, based on over a decade of experiences in the industry. This forms a high barrier that is had to breakthrough in the short term.

二是建立了成熟高效的全流程機制，實現高效決策、嚴控質量、優化內容調度。這個機制的關鍵是基於對整個內容行業的深刻理解，基於十多年的行業經驗。這形成了短期內必須突破的高壁壘。

The breakthroughs in original content have improved the overall quality and influence of our content, giving us absolute advantages as the industry leader. In terms of market share, in September, effective views of our dramas ranked No.1, with the greatest lead in our history. Effective views of our exclusive dramas took an absolute lead, more than the sum of competitors in the second and third positions, according to Enlighten.

原創內容的突破，提升了我們內容的整體質量和影響力，讓我們擁有絕對的行業領先優勢。市場份額方面，9月，我們的劇集有效觀看量排名第一，領先歷史最大。獨家劇集有效瀏覽量絕對領先，超過二、三位競爭對手的總和。

In terms of popularity, we launched the iQIYI popularity index back in 2018, and since then, only 6 titles received a score above 10,000; and 22 titles received score above 9,000. In other words, titles with a popularity index of over 10,000 are considered potential franchise titles, and over 9,000 are household blockbusters. Among the top 6 popular dramas, 4 were released this year, and 2 in Q3. For the first nine months, a total of 7 dramas broke 9,000.

在熱度方面，我們早在2018年就推出了愛奇藝熱度指數，從那時起，只有6部作品的評分超過了10000分； 9000分以上的作品有22個。換句話說，人氣指數超過 10,000 的影片被認為是潛在的特許經營影片，超過 9,000 的影片是家庭大片。熱播劇前6名中，今年有4部，第三季度有2部。前9個月，共有7部劇破9000。

Our content has also received great word of mouth. Users actively discuss, rate and recommend our content on social platforms. On the third-party platform douban.com, 9 of our dramas launched in Q3 received a rating of over 7, the best quarterly performance in our history. The performance was driven by our carefully refined content scheduling based on our content reserve and user demand. For the 2 dramas breaking a popularity index of 10,000 in Q3, Love Between Fairy and Devil tapped into the demand of young generation audience during the summer vacation, it’s creative story telling set it apart from other titles in the same genre.

我們的內容也得到了很好的口碑。用戶在社交平台上積極討論、評價和推薦我們的內容。在第三方平台豆瓣網，我們在第三季度推出的劇中有 9 部獲得了 7 分以上的評分，這是我們歷史上最好的季度表現。性能是由我們根據內容儲備和用戶需求精心改進的內容調度推動的。作為Q3熱度破萬的兩部劇，《仙魔之戀》抓住了暑期檔年輕一代觀眾的需求，創意的故事講述讓其在同類型劇中脫穎而出。

Chasing the Undercurrent, although the storyline is oriented to relatively matured users, but well-liked by a wide range of age groups, and with high viewing completion rate. In addition to dramas, we maintained our output of premium content in other

《暗流追擊》雖然劇情面向的是相對成熟的用戶，但受到了廣泛年齡層的喜愛，觀看完播率也很高。除了電視劇，我們在其他方面也保持了優質內容的輸出

categories. For variety shows, the effective views of the multi-season show The Rap of China 2022 was leading the online variety show market in Q3. The second season of The Super Sketch Show has attracted the largest advertising budget among the variety shows we launched this year. In addition, our original animations recorded solid growth in both the number of titles launched and revenues.

類別。綜藝方面，多季綜藝《中國新說唱2022》的有效觀看量在第三季度領跑網絡綜藝市場。超級小品第二季是我們今年推出的綜藝節目中廣告預算最大的一個。此外，我們的原創動畫在推出的作品數量和收入方面均錄得穩健增長。

During the quarter, our IP franchise format also achieved great performance. We launched both the original drama and animation based on the same IP, The Love Between Fairy and Devil, and saw great synergies. Membership revenue of this original animation stayed as No.2 on the animation channel during the entire summer vacation, just behind the Japanese animation One Piece. Entering into Q4, we will maintain the strong momentum of Q3 by launching a number of highly-anticipated dramas, including New Life Begins, Wild Bloom featuring top leading actress [indiscernible], and Unchained Love featuring indiscernible . The leading actor from our blockbuster drama Love between Fairy and Devil this summer.

本季度，我們的 IP 特許經營業態也取得了不錯的表現。我們推出了基於同一個IP《仙魔之戀》的原創劇集和動畫，並看到了巨大的協同效應。整個暑期，這部原創動畫的會員收入穩居動畫頻道第二，僅次於日本動畫《海賊王》。進入第四季度，我們將繼續保持第三季度的強勁勢頭，推出多部備受期待的劇集，包括新生活開始、頂級女主角[音頻不清晰]的野性綻放、音頻不清晰的無鎖之愛。今年夏天我們的大片《仙魔之戀》的男主角。

We continued to explore new content themes that cater to diversified user demand, such as the recently launched drama series selections targeting female audience. Please also

我們繼續探索迎合多元化用戶需求的新內容主題，例如最近推出的針對女性觀眾的劇集精選。還請

anticipate a good selection of variety shows, children’s animations and movies slated for release.

期待精彩的綜藝節目、少兒動畫片和電影的上映。

Moving on to advertising. Similar to our peers, we fought against macro headwinds and increased advertising revenue by 4% sequentially. For brand advertising, the revenue recovered sequentially and the year-over-year decline narrowed compared with last quarter, reflecting the attractions of hit dramas

繼續做廣告。與同行類似，我們與宏觀逆風作鬥爭，廣告收入環比增長 4%。品牌廣告收入環比回升，同比降幅較上季收窄，反映熱播劇的吸引力

and variety shows in the peak summer vacation season. We saw sequential recovery in the number of brand ad clients in Q3, as well as recovery of ad demand for international brand advertisers. For performance ads, we saw revenue increases both annually and sequentially.

以及暑假旺季的綜藝節目。我們看到第三季度品牌廣告客戶數量環比回升，國際品牌廣告商的廣告需求也在回升。對於效果廣告，我們看到收入每年和連續增長。

Heading into Q4 and next year, we face the same challenges as our peers, as Q4 is a traditional off season for advertising, and macro recovery takes time to be reflected in advertising budgets. Currently, we expect continuous sequential recovery in advertising business for Q4. For next year, if macro economy recovers and with absence of pandemic resurgence, we shall anticipate to see year-over-year recovery also.

進入第四季度和明年，我們面臨著與同行相同的挑戰，因為第四季度是傳統的廣告淡季，宏觀復甦需要時間才能體現在廣告預算中。目前，我們預計第四季度廣告業務將持續復甦。對於明年，如果宏觀經濟復甦並且沒有大流行病捲土重來，我們也有望看到同比復甦。

Technical innovation has always been part of our core values. We are committed to bringing the best entertainment experience to every user. At the same time, we hope to promote the industrialization of long-form videos to drive the robust development of the Chinese video industry. This ambition is reflected in our daily work as our engineering team focusses on every product detail. A recent example of our approach to product improvement was the optimization of the bullet chat quality and distribution algorithm, which improved the user

技術創新一直是我們核心價值觀的一部分。我們致力於為每一位用戶帶來最好的娛樂體驗。同時，我們希望推動長視頻的產業化，帶動中國視頻行業的蓬勃發展。這種雄心壯志反映在我們的日常工作中，因為我們的工程團隊專注於每個產品細節。我們最近改進產品的一個例子是彈幕質量和分發算法的優化，這提高了用戶

interaction and stickiness.

互動和粘性。

Average daily number of users that activated the bullet chat feature increased year-over-year in Q3, and the daily average

Q3彈幕用戶日均激活量同比增長，日均

number of bullet chat interaction increased by 50% year-over-year. We also continue to utilize in-house developed tools to improve content production efficiency. The iQIYI video production management system acts as an efficient tool to help production teams. By the end of Q3, the system have been applied to 5 iQIYI original dramas. In addition to improving efficiency and production quality, the system also saves costs and effectively controls budgets.

彈幕互動次數同比增長50%。我們還繼續利用內部開發的工具來提高內容製作效率。愛奇藝視頻製作管理系統是幫助製作團隊的高效工具。截至Q3末，該系統已應用於5部愛奇藝原創劇集。除了提高效率和生產質量，該系統還節省了成本並有效地控制了預算。

For overseas business, in Q3, we saw healthy growth in membership revenue both annually and sequentially, reflecting the popularity of our premium content and improved operating capability. Premium content launched during the quarter had solid results both in terms of monetization and word of mouth. Hit Chinese dramas on our domestic main app also performed very well overseas, further extending the IP value on a larger scale. Top dramas under our Sweet On Theater brand, including The Love Between Fairy and Devil and Thousand Years For You, had sound performance. Premium content also drove improvements in monetization. For example, advertisers recognized the

對於海外業務，在第三季度，我們看到會員收入的年度和環比健康增長，反映了我們優質內容的受歡迎程度和運營能力的提高。本季度推出的優質內容在貨幣化和口碑方面都取得了可觀的成果。在我們國內主應用上的熱播國劇在海外也表現出色，進一步擴大了IP價值在更大範圍內的延伸。 《仙魔之戀》、《為你千年》等甜蜜劇場品牌的熱播劇均有良好的表現。優質內容還推動了貨幣化的改進。例如，廣告商認識到

value of our theater model, and we attracted partners such as Lazada and Realme as title sponsors for Sweet On theater in Thailand.

我們的劇院模式的價值，我們吸引了Lazada和Realme等合作夥伴作為泰國Sweet On劇院的冠名贊助商。

In the first three quarters of 2022, we again demonstrated the powerful execution abilities, professionalism, and strong unity of everyone within iQIYI. For three consecutive quarters, we outperformed by continuously improving fundamentals, demonstrating our value to everyone. We achieved growth in

2022年前三季度，我們再次展現了愛奇藝每一個人強大的執行力、敬業精神和強大的團結精神。連續三個季度，我們通過不斷改善基本面表現出色，向所有人展示了我們的價值。我們實現了增長

market share while significantly improving our financial performance. As content is our core competency, we are confident that we will be able to deliver blockbusters on a continuing basis as we have worked out replicable methodologies for both original content production and operations. These

市場份額，同時顯著改善我們的財務業績。由於內容是我們的核心競爭力，我們有信心能夠持續交付大片，因為我們已經為原創內容製作和運營製定了可複制的方法。這些

methodologies lay a solid foundation for healthy growth.

方法論為健康成長奠定了堅實的基礎。

We believe that we have achieved an iconic turnaround in the context of an extremely challenging macro environment this year, and we will continue to deliver values both to

我們相信，在今年極具挑戰性的宏觀環境下，我們已經實現了標誌性的轉機，我們將繼續為雙方創造價值

users who love our content and stakeholders who are as confident as we are in the prospects of long-form video. Now, I will hand over to Wang Jun for financial details.

喜歡我們內容的用戶和與我們一樣對長視頻前景充滿信心的利益相關者。現在，我將財務細節交給王軍。

Thanks Mr. Gong and hello everyone. In Q3, we booked RMB 7.5 billion in total revenues, up 12% sequentially. Our non-GAAP operating profit reached RMB 524 million, increased 53% sequentially. Meanwhile, we have been generating positive operating cash flow for two consecutive quarters, and recorded nearly 200 million operating cashflow in the third quarter. These encouraging results demonstrated the resilience of our business under extremely challenging macro environment and the pandemic resurgence.

謝謝龔總，大家好。第三季度，我們的總收入為人民幣 75 億元，環比增長 12%。我們的非美國通用會計準則營業利潤達到人民幣 5.24 億元，環比增長 53%。同時，我們連續兩個季度產生正的經營現金流，第三季度錄得近2億元的經營現金流。這些令人鼓舞的業績證明了我們的業務在極具挑戰性的宏觀環境和大流行病捲土重來的情況下的韌性。

Within the revenue lines, we recorded membership services revenue of RMB 4.2 billion. As Mr. Gong mentioned in his opening remarks, the performance of our membership business was back-loaded and the current Q3 result is not a full reflection of the strong momentum we observed. During the quarter, the number of subscribing members grew from 95.6 million as of June 30, 2022 to 106.2 million as of September 30, 2022, representing a net addition of over 10 million during the quarter.

在收入線內，我們錄得會員服務收入人民幣42億元。正如龔先生在開場白中提到的那樣，我們的會員業務表現受到影響，目前第三季度的業績並不能完全反映我們觀察到的強勁勢頭。本季度，訂閱會員數量從2022年6月30日的9560萬增加到2022年9月30日的1.062億，本季度淨增超過1000萬。

Now move on to the cost and expenses. The third quarter cost of revenues was RMB 5.7 billion, representing a cost saving of RMB 1.3 billion compared with the same period last year, or down 19% annually. Content cost, a significant component of cost of revenues, decreased 18% annually, and up 12% sequentially. The sequential increase is the result of operational initiatives

現在繼續討論成本和費用。第三季度營業成本為人民幣57億元，同比節省成本13億元，同比下降19%。內容成本是收入成本的重要組成部分，每年下降 18%，環比上升 12%。環比增長是運營舉措的結果

under our calm growth strategy. We launched more hits during the quarter, bringing more subscribers, and generating more profits, which forms a virtuous cycle.

在我們冷靜的增長戰略下。我們在本季度推出了更多的點擊量，帶來了更多的訂閱者，並產生了更多的利潤，形成了一個良性循環。

Our gross profit margin, which is a direct metric to reflect the ROI of our content business, consistently expanded in the past four quarters and reached historical high of 24% in Q3, compared with 7% in the same period last year. Meanwhile, with the continuous optimization of our business operations, our

我們的毛利率是反映我們內容業務投資回報率的直接指標，在過去四個季度持續增長，並在第三季度達到 24% 的歷史新高，而去年同期為 7%。同時，隨著我們業務運營的不斷優化，我們的

total operating expenses decreased by 470 million year over year. The expanded gross margin and disciplined operating expenses combined contributed to our non-GAAP profit expansion.

總營業費用同比減少4.7億。擴大的毛利率和嚴格的運營費用共同促進了我們的非 GAAP 利潤增長。

For Q3, non-GAAP operating profit was RMB 524 million, compared to non-GAAP operating loss of RMB1.1 billion from the same period last year, up by 53% quarter over quarter. At the end of the third quarter, the company had cash, cash equivalents, restricted cash and short-term investments of RMB 5.0 billion, compared with RMB 4.9 billion in the previous quarter. Our operating cash inflow reached a 196 million during the quarter.

第三季度，非美國通用會計準則營業利潤為人民幣 5.24 億元，而去年同期的非美國通用會計準則營業虧損為人民幣 11 億元，環比增長 53%。三季度末，公司持有現金、現金等價物、受限制現金和短期投資50億元，上一季度為49億元。本季度我們的經營現金流入達到了 1.96 億美元。

Going forward, we will continue to execute the Calm Growth strategy and our commitment to achieving healthy business growth remains unchanged. We are confident in our ability to generate value for our stakeholders in the long run. For detailed financial data, please refer to our press release on our IR website. Now, I will now open the floor for Q&A

展望未來，我們將繼續執行“穩健增長”戰略，實現業務健康增長的承諾不變。從長遠來看，我們有信心為我們的利益相關者創造價值。有關詳細的財務數據，請參閱我們在 IR 網站上發布的新聞稿。現在，我將開始問答環節

(Operator Instructions) And the first question will come from Thomas Chong of Jefferies

（操作員說明）第一個問題將來自 Jefferies 的 Thomas Chong

My question is about the membership business. Can management talks about the Q3 overall membership business performance as well as the growth driver. Is it coming more from the number of subs or from the arm side and also what are the key drivers going forward?

我的問題是關於會員業務。管理層能否談談第三季度的整體會員業務表現以及增長動力。它更多地來自潛艇的數量還是來自手臂方面，以及未來的關鍵驅動因素是什麼？

The fact your client in membership revenue was due to 3 factors mainly. First, the temporary decline in consumer sentiment in May, June and July due to the pandemic resurgence in the first half of the year; second, the delay of certain key dramas during June and July. And third, the significant reduction of marketing spending as part of our business stress test. And starting from the second half of August, we successfully reversed the trend with a series of premium content releases, including bots between [indiscernible] and several shaping the under current and solving this for you. And also, the reasonable increase in marketing spending and recovery in consumer sentiment also contributed positively to strong and continuous growth in subscriber numbers.

您的客戶的會員收入主要歸因於 3 個因素。一是上半年疫情捲土重來，導致5、6、7月份消費情緒暫時下滑；二是部分重點劇集在六、七月份延期上映。第三，作為我們業務壓力測試的一部分，營銷支出大幅減少。從 8 月下半月開始，我們通過發布一系列優質內容成功扭轉了這一趨勢，其中包括 [音頻不清晰] 之間的機器人和一些塑造暗流並為您解決這個問題的機器人。此外，營銷支出的合理增長和消費者情緒的回暖也對用戶數量的強勁和持續增長做出了積極貢獻。

As such, our membership services revenue grew from a relatively lower base of the sub number in July. The strong subscriber number growth started to pick up in August. As a result, the performance of our membership business was backloaded and the current Q3 results is not a full reflection of the strong momentum we observed.

因此，我們的會員服務收入從 7 月份相對較低的子數量基數開始增長。用戶數量的強勁增長在 8 月份開始回升。因此，我們的會員業務業績出現倒退，目前的第三季度業績並未完全反映我們觀察到的強勁勢頭。

In Q3, there are 2 months left for the summer vacation. And among our user base, there are a large number of students in this group so that they are the potential users for us. So therefore, we offered promotional discounts during the summer season to encourage more users to expand our services at a relatively lower price point. That's why it caused some of the fluctuation during the third quarter.

Q3，還有2個月的暑假。而在我們的用戶群中，這個群體中有大量的學生，他們是我們的潛在用戶。因此，我們在夏季提供促銷折扣，以鼓勵更多用戶以相對較低的價格擴展我們的服務。這就是它在第三季度造成一些波動的原因。

And for our entire membership business going forward, our main goal is to grow the membership services revenue while achieving healthy performance on the subscriber numbers and ARM. And in terms of growing the sub numbers in the future, it comes from 2 aspects. One is the continuous investment in content, namely especially for the head of premium content. And also the second point is continued investment in marketing spending.

對於我們未來的整個會員業務，我們的主要目標是增加會員服務收入，同時在訂戶數量和 ARM 上實現健康的表現。而在未來子號的增長方面，來自於兩個方面。一是對內容的持續投入，尤其是對頭部優質內容的投入。第二點是對營銷支出的持續投資。

For the indiscernible , it comes from 2 reasons. One is the lowering of the discount in the past years and also that increase in the listing price of our member business. Thank you.

對於難以辨認的，它來自兩個原因。一個是往年折扣的降低，還有我們會員業務掛牌價的上漲。謝謝你。

The next question comes from Alicia Yap of Citigroup.

下一個問題來自花旗集團的 Alicia Yap。

Congrats on the strong results. My question is related to the video content. So IT has successfully released the numbers of heat drama this quarter this year that received very good feedback. So can management share with us how will IT ensure in the future that you will also have a very high hit ratio for your drama?

祝賀你取得了優異的成績。我的問題與視頻內容有關。所以IT在今年這個季度成功發布了熱播劇的數量，反響非常好。那麼管理層可以跟我們分享一下IT如何保證未來你們的劇也有非常高的命中率嗎？

This question is content related. So I will invite our Chief Content Officer, Wang Xiaohui to answer this question.

這個問題與內容有關。那麼我就請我們的首席內容官王曉輝來回答這個問題。

We launched the ITE popularity index back in 2018. And since then, only 6 titles received a score above 10,000, were released this year and to in Q3. And this perfectly demonstrates that there are a long-term commitment to original content. The original content has become one of the main contributors to our blockbuster content.

我們早在 2018 年就推出了 ITE 人氣指數。從那時起，今年和第三季度發布的遊戲只有 6 款得分超過 10,000。這完美地表明了對原創內容的長期承諾。原創內容已成為我們重磅內容的主要貢獻者之一。

The success was mainly contributed from 3 factors. First was mainly attributable to the powerful production team that we have built through our in-house studios, which contains highly experienced professionals with various creative styles. We also have very sophisticated supporting teams across different functions to support these studios through the entire process, which runs through processes from creative ideas development, content production, broadcasting and marketing.

成功主要歸功於3個因素。首先主要歸功於我們通過內部工作室建立的強大的製作團隊，其中包括具有各種創作風格的經驗豐富的專業人士。我們還擁有非常成熟的跨不同職能的支持團隊，在整個過程中為這些工作室提供支持，該過程貫穿從創意構思開發、內容製作、廣播和營銷的過程。

At the script level, we rely on the professional teams and get them relative flexibility in straining the creative ideas, emphasize on polishing scripts, which build a solid foundation for the content creation process.

在劇本層面，我們依托專業團隊，讓他們相對靈活地發揮創意，強調打磨劇本，為內容創作打下堅實的基礎。

At the production level, once we have the solid content creation foundation in place, we will follow by rigorous process before projects entering into the billing process. In addition, we will collaborate with highly professional, creative and reliable partners in the production process, select the most suitable actors based on our comprehensive forecasting mechanism. All of the above will safeguard the continuous creativeness and the high quality of our original production.

在製作層面，一旦我們有了堅實的內容創作基礎，我們將在項目進入計費流程之前遵循嚴格的流程。此外，我們會在製作過程中與高度專業、富有創造力和可靠的合作夥伴合作，根據我們全面的預測機制選擇最合適的演員。以上種種，將保障我們原創作品的持續創意和高品質。

The second factor was contributed by we have established a mature and highly efficient mechanism running through the entire process from developing an idea into original drama series to broadcasting and marketing it. This mechanism enables highly efficient decision-making, strict quality controls and optimal content scheduling based on user preferences. And going forward, we will continue to seek an effective balance between embracing the diversity of content creativeness and efficiency in the production process.

第二個因素是我們建立了一套成熟高效的機制，貫穿從創意到原創劇集，再到播出、營銷的全過程。該機制可實現高效的決策制定、嚴格的質量控制和基於用戶偏好的最佳內容調度。展望未來，我們將繼續在內容創意的多樣性和製作過程中的效率之間尋求有效平衡。

The third effect is that our intelligence reduction system is getting more sophisticated, which also helps in terms of increasing the possibilities of creating blockbuster content and improving efficiency.

第三個效果是我們的智能還原系統越來越完善，這也有助於增加創造大片內容的可能性和提高效率。

The next question comes from Lei Zhang of Bank of America Securities.

下一個問題來自美國銀行證券的張磊。

My question is mainly regarding cash flow. I noted that we have a meaningful improvement in free cash flow and operating cash flow with a positive free cash flow this quarter. So can you give us more color on the driver behind it and how should we look at the trend going forward?

我的問題主要是關於現金流。我注意到，本季度我們的自由現金流和經營現金流有了顯著改善，自由現金流為正。那麼您能否給我們更多關於其背後驅動因素的顏色，我們應該如何看待未來的趨勢？

So I think that to answer the second part of the question first, yes, we are very confident that this trend could continue in the future. And behind that, we do see if we can review the entire process of the turnaround, we will say that the starting point of the turnaround is a very disciplined expense management. It's a very ROI-focused talent strategy, and we have continued to do that throughout the 3 quarters.

所以我認為首先回答問題的第二部分，是的，我們非常有信心這種趨勢在未來會繼續下去。在那之後，我們確實看到我們是否可以回顧整個轉機過程，我們會說轉機的起點是非常有紀律的費用管理。這是一個非常注重投資回報率的人才戰略，我們在整個 3 個季度都在繼續這樣做。

But on top of that, in the third quarter, we do see some new catalysts coming in and these UCAs including a virtuous cycle, which starts with our investment in the content. Then our investment content generate more hits, more hit titles and give users more value proposition, which in turn attracted more members than creating possibility for generating derivative revenues. Then on top of that we will cover into the profit then in turn, bring us more free cash flow. And we will certainly continue to do that, and we do believe this success is reputable, which support the trend -- which supports the positive free cash flow trend. So that's point number one.

但最重要的是，在第三季度，我們確實看到了一些新的催化劑出現，這些 UCA 包括一個良性循環，從我們對內容的投資開始。然後我們的投資內容產生更多的點擊率，更多的熱門標題，給用戶更多的價值主張，這反過來又吸引了更多的會員，而不是創造產生衍生收入的可能性。然後最重要的是，我們將覆蓋到利潤中，然後反過來，為我們帶來更多的自由現金流。我們肯定會繼續這樣做，我們相信這一成功是有聲望的，這支持了這一趨勢——支持積極的自由現金流趨勢。所以這是第一點。

So on top of that, we also like to comment because we have been very much focused on original content, as you guys have been asking questions around that. Now original content means IP value and IP value can generate derivative revenues with higher margin and this is consistent with our experience and observation of the media conglomerates globally. So this -- if not this creates the whole new opportunities for the company in the future.

因此，最重要的是，我們也喜歡發表評論，因為我們一直非常關注原創內容，因為你們一直在就此提出問題。現在原創內容意味著IP價值，IP價值可以產生更高利潤率的衍生收入，這與我們對全球媒體集團的經驗和觀察是一致的。所以這 - 如果不是這樣，這會在未來為公司創造全新的機會。

The next question comes from Daniel Chen of JPMorgan.

下一個問題來自摩根大通的丹尼爾陳。

Congratulate on the really solid result. My question is on the content regulation overall environment for the long-form video. Could management share some color on this?

祝賀真正可靠的結果。我的問題是關於長視頻的內容監管整體環境。管理層可以分享一些顏色嗎？

About 2021, is last year in the 2021, there are different authorities that roll out different policies that kind of tightened the photograph regulatory environment for the online video space. But as we entered into 2022, until now the regulatory environment seems to be relatively stable, and we haven't seen major changes in such process.

大約在 2021 年，也就是 2021 年的最後一年，不同的部門出台了不同的政策，收緊了在線視頻領域的照片監管環境。但隨著我們進入2022年，到目前為止監管環境似乎相對穩定，我們還沒有看到這個過程發生重大變化。

The main current focus for us is to increase quality and optimize content quantity which not only applies to us and our peers, and we are glad to see that coincidently also applies to the various government authorities and then they would guide out policies that's actually positive to such process.

我們目前的主要關注點是提高質量和優化內容數量，這不僅適用於我們和我們的同行，我們很高興看到巧合的是，這也適用於各個政府部門，然後他們會指導出真正積極的政策這樣的過程。

After the 3 months -- 3 quarters of time for ICE, we now figure out a perfect balance between the front that we show for content and also the amount of marketing spending into this market to promote our content. So going forward, based on the success of our past 3 quarters and under the comp growth strategy, we believe that we can have healthy and sustainable growth for our business going forward.

在 3 個月 - 3 個季度的 ICE 時間之後，我們現在在我們展示內容的前沿與為推廣我們的內容而進入該市場的營銷支出之間找到了完美的平衡。因此，展望未來，基於我們過去 3 個季度的成功和競爭增長戰略，我們相信我們的業務能夠實現健康和可持續的增長。

There are no further questions at this time. I'll now hand back to management for closing remarks.

目前沒有其他問題。我現在將交還給管理層作結束語。

Thank you, everyone, for joining our call today. Please do not hesitate to contact the IR team for the management if you have further questions, and see you next time. Thank you. Bye-bye. Thank you.

謝謝大家今天加入我們的電話會議。如果您還有其他問題，請隨時聯繫 IR 團隊進行管理，我們下次再見。謝謝你。再見。謝謝你。

That does conclude our conference for today. Thank you for participating, and you may now disconnect.

我們今天的會議到此結束。感謝您的參與，您現在可以斷開連接。