(IQ) 2023 Q2 法說會逐字稿

Thank you for standing by, and welcome to the iQIYI Second Quarter 2023 Earnings Conference Call. (Operator Instructions) I would now like to hand the conference over to Ms. Chang Yu, IR Director of the company. Please go ahead.

感謝您的耐心等待，歡迎參加愛奇藝 2023 年第二季度財報電話會議。 （操作員指示） 現在我將會議交給公司IR總監常宇女士。請繼續。

Thank you, operator. Hello, everyone, and thank you for joining iQIYI Second Quarter 2023 Earnings Conference Call. The company's results were released earlier today and are available on the company's Investor Relations website at ir.iqiyi.com.

謝謝你，接線員。大家好，感謝您參加愛奇藝2023年第二季度財報電話會議。該公司的業績於今天早些時候發布，可在該公司的投資者關係網站 ir.iqiyi.com 上查閱。

On the call today are Mr. Yu Gong, our Founder, Director and CEO; Mr. Jun Wang, our CFO; Mr. Xiaohui Wang, our CCO, Chief Content Officer; Mr. Wenfeng Liu, our CTO, Chief Technology Officer; Mr. Youqiao Duan, Senior Vice President of our Membership business; and Mr. Gang Wu, Senior Vice President of Brand Advertising business.

今天參加電話會議的是我們的創始人、董事兼首席執行官龔宇先生；王軍先生，我們的首席財務官；王曉輝先生，我們的 CCO、首席內容官；劉文峰先生，我們的CTO、首席技術官；段友橋先生，會員業務高級副總裁；吳剛先生，品牌廣告業務高級副總裁。

Mr. Gong will give a brief overview of the company's business operations and highlights followed by Jun, who will go through the financials. After the prepared remarks, the management team will participate 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.

龔先生將簡要概述公司的業務運營和亮點，隨後君將介紹財務狀況。在準備好的發言後，管理團隊將參加問答環節。在我們繼續之前，請注意，今天的討論將包含根據1995 年美國私人證券訴訟改革法案的安全港條款做出的前瞻性陳述。前瞻性陳述受到風險和不確定性的影響，可能導致實際結果有所不同與我們目前的預期相差很大。

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 statements, except as required under applicable law. I will now pass on the floor to Mr. Gong. Please go ahead.

潛在風險和不確定性包括但不限於我們向 SEC 公開提交的文件中概述的風險和不確定性。除適用法律要求外，愛奇藝不承擔更新任何前瞻性陳述的義務。現在請龔先生髮言。請繼續。

Hello, everyone. Thank you for joining us today. our focus of the quarter remained firmly on generating high-quality growth. Our original content strategy continues to deliver top-notch titles which in turn brought the strongest second quarter performance in our history in terms of key metrics, such as total revenues, profits, free cash flow and average daily subscribers during the quarter.

大家好。感謝您今天加入我們。我們本季度的重點仍然是實現高質量增長。我們的原創內容策略繼續提供一流的遊戲，這反過來又在關鍵指標方面帶來了我們歷史上最強勁的第二季度業績，例如該季度的總收入、利潤、自由現金流和平均每日訂閱者。

Also, we maintain our industry-leading position across various key aspects. The exceptional quarterly results clearly demonstrates the resilience and immense long-term growth potential of our business.

此外，我們在各個關鍵方面保持行業領先地位。出色的季度業績清楚地表明了我們業務的韌性和巨大的長期增長潛力。

Now let me walk you soon to key developments in the second quarter. Firstly, we maintain our industry-leading position in drama market share for 6 consecutive quarters according to Enlightent. Our original dramas continue to play major role in terms of content supply and the revenue contribution. Notably Destined (inaudible) broke iQIYI's popularity index record by exceeding the 10,000 score in the shortest time. In addition, titles such as Thirteen Years of Dust and The Ingenious One generated highly positive word-of-mouth reviews, really enforcing our brand image diversify on the high-quality premium content powerhouse.

現在讓我向您介紹第二季度的主要進展。首先，根據Enlightent的數據，我們的戲劇市場份額連續6個季度保持行業領先地位。我們的原創劇在內容供應和收入貢獻方面繼續發揮重要作用。 《命中註定》（聽不清）在最短時間內破萬，打破了愛奇藝的人氣指數紀錄。此外，《十三年風塵》、《巧奪天工》等作品也獲得了高度好評，真正強化了我們在優質優質內容強國上的品牌形像多元化。

Second, on our financial perspective, we had the best second quarter revenue performance in our history, up 17% year-over-year. We recorded double-digit annual revenue growth across all key business lines, membership services revenue grew 15% annually and advertising revenue grew 25% annually. Meanwhile, non-GAAP operating income hit RMB 786 million, grew by 129% annually, marking the sixth consecutive quarter of profitability. Furthermore, our ability to generate cash further strengthened with free cash flow reaching RMB 872 million, positive for our consecutive quarters.

其次，從財務角度來看，我們第二季度的收入表現是歷史上最好的，同比增長 17%。我們所有主要業務線的年收入均實現兩位數增長，會員服務收入每年增長 15%，廣告收入每年增長 25%。與此同時，非美國通用會計準則營業收入達到人民幣7.86億元，同比增長129%，連續第六個季度盈利。此外，我們的現金產生能力進一步增強，自由現金流達到人民幣8.72億元，連續幾個季度為正。

Our performance in the second quarter represents another solid step in our pursuit of high-quality growth. As we previously mentioned, iQIYI and the entire industry have been completely transformed. With rationalized competition, we have seen improving return on investment for the entire streaming industry. And as an industry leader, iQIYI largely enhanced original content ability to financial performance set a new market standard that drives the overall industry advancement. In light of this, we aim to the enhance the long-term health of our company production and operations, so that we can consistently outperform the industry.

二季度的業績，是我們追求高質量發展又邁出了堅實的一步。正如我們之前提到的，愛奇藝和整個行業已經徹底轉型。隨著競爭的合理化，我們看到整個流媒體行業的投資回報率不斷提高。而作為行業領頭羊，愛奇藝大幅提升原創內容能力，為財務業績樹立了新的市場標準，帶動了整個行業的進步。有鑑於此，我們的目標是增強公司生產和運營的長期健康狀況，使我們能夠持續領先於行業。

Now let's dive deeper into the performance of our core business segment, starting with membership services. During the quarter, both membership revenue and the number of subscribers hit all-time high for a second quarter. Membership revenue decreased RMB 4.9 billion, up 15% year-over-year. Look at the key drivers behind. Monthly ARM for the quarter reached RMB 14.82, increasing both annually and sequentially. This was driven by our refined operating strategy.

現在，讓我們從會員服務開始，更深入地了解我們核心業務部門的業績。本季度，會員收入和訂戶數量均創第二季度歷史新高。會員收入同比減少49億元，增長15%。看看背後的關鍵驅動因素。本季度每月ARM達到人民幣14.82元，同比和環比均有所增長。這是由我們精細化的運營策略推動的。

For example, we optimized our pricing strategy, which effectively narrowed the gap between listing and actual rates. Average daily number of total subscribers in Q2 reached 111.2 million, up 13% year-over-year, primarily driven by our stable supply of content that continues to attract and retain members.

例如，我們優化了定價策略，有效縮小了掛牌價與實際價的差距。第二季度日均訂閱總人數達到 1.112 億，同比增長 13%，這主要得益於我們穩定的內容供應，持續吸引和留住會員。

Our subscriber base declined on sequential business primarily due to, one, the impact of seasonality; and two, the high base effect after the release of The Knockout and the natural attrition of members. Despite that, we are encouraged by the continuous optimization of membership structure. The absolute number and proportion of annual subscribers both had meaningful growth year-over-year. I would like to reiterate that the goal of our membership business is to maximize user experience, which in turn -- which in return strengthens our membership services revenue.

我們的用戶數量連續業務有所下降，主要是由於，一是季節性的影響；二是淘汰賽推出後的高基數效應和會員的自然流失。儘管如此，會員結構的不斷優化仍令我們感到鼓舞。年度訂閱用戶的絕對數量和比例均同比出現顯著增長。我想重申，我們會員業務的目標是最大限度地提高用戶體驗，從而增強我們的會員服務收入。

Going forward, we are more focused on the overall economics, not just pure subscriber growth. We dynamically adjust and carefully balance the number of subscribers and ARM based -- based on multiple factors, including content supply, user demand and market conditions. More importantly, we strive to enhance the overall healthiness and the revenue growth sustainability of our membership business. Providing exceptional user experience is key. To do so, we established a loyalty program that includes diversified privileges and benefits.

展望未來，我們更關注整體經濟，而不僅僅是純粹的用戶增長。我們根據多種因素，包括內容供應、用戶需求和市場狀況，動態調整併謹慎平衡訂閱者數量和基於 ARM 的數量。更重要的是，我們努力提高會員業務的整體健康度和收入增長的可持續性。提供卓越的用戶體驗是關鍵。為此，我們制定了一項忠誠度計劃，其中包括多元化的特權和福利。

The long-term loyal numbers can enjoy more favorable pricing and privileges, reinforcing users' perception that early enrollment and a long-period subscription offer greater benefits. Just recently, we rolled out the Express Package program, which grants early access to the finale of our hit drama, the Lotus Casebook. Within the eight-day event, over 6 million subscribers have used their membership points to access the Express Package. Our first Express Package event received very positive feedbacks among numbers. As membership points are linked to the duration and the continuous subscription members with longer subscription periods are entitled to higher reward points and also accumulate points at a faster speed. We expect this initiative will further strengthen subscriber loyalty and drive member retention rate.

長期忠誠的用戶可以享受更優惠的價格和特權，強化用戶的認知，即早期註冊和長期訂閱可以帶來更大的好處。就在最近，我們推出了 Express Package 計劃，讓您可以提前觀看我們的熱門電視劇《蓮花案例》的大結局。在為期八天的活動中，超過 600 萬訂閱者使用會員積分獲取了 Express 套餐。我們的第一次快遞包裹活動收到了非常積極的反饋。由於會員積分與時長掛鉤，連續訂閱會員的訂閱週期越長，獲得的積分越高，累積積分的速度也越快。我們預計這一舉措將進一步增強訂戶忠誠度並提高會員保留率。

Moving on to content. We continue to execute our original company strategy and reinforce our brand image "as a diversified and a high-quality premium content powerhouse." In the first half of 2023, we have already released two dramas that broke the 10,000 popularity index score. As I mentioned earlier, we maintained the top position in the drummer market share for 6 quarters in a row. Original content remains the proper driver to our content supply and revenue. Among all major dramas released during the second quarter. Original content accounted for 67% with their share of revenue contribution remaining high. We kicked off our summer 2023 lineup with the release of Destined which was the fastest drama in our history to break 10,000 popularity index score. This was the ninth show that broke such score in our history, and the second title that did so this year.

繼續內容。我們繼續執行原來的公司戰略，強化我們“作為多元化、高品質優質內容巨頭”的品牌形象。 2023年上半年，我們已經上映了兩部人氣指數破萬的劇。正如我之前提到的，我們連續六個季度保持鼓手市場份額第一的位置。原創內容仍然是我們內容供應和收入的適當驅動力。在第二季度上映的所有主要電視劇中。原創內容佔比67%，收入貢獻佔比依然較高。我們以《命中註定》的發行拉開了 2023 年夏季陣容的序幕，這是我們歷史上人氣指數突破 10,000 分最快的電視劇。這是我們歷史上第九個打破這一分數的節目，也是今年第二個打破這一分數的節目。

In addition, Thirteen Years of Dust under our Mist Theater brand and Beauty of Resilience also received critical acclaim for their appealing stories. And at the same time, our original variety shows made their strong return, and their popularity remain as strong as strong as ever. Our market share for total variety shows was the highest in the industry according to Enlightent.

此外，我們的霧劇場品牌《十三年的塵埃》和《美麗的堅韌》也因其故事引人入勝而廣受好評。與此同時，我們的原創綜藝強勢回歸，人氣一如既往。根據Enlightent的數據，我們的綜藝節目總量的市場份額是行業最高的。

Even more impressive was the market share for our exclusive variety shows, which doubled sequentially. The highly anticipated shows launched in Q2 included our flagship, The Detectives' Adventures Season 3, The Rap of China 2023, HAHAHAHAHA Season 3, and innovative new shows such as Become A Farmer. This season of The Rap of China was a true hit, and scored the highest popularity index score for variety shows. Moreover, we have completed a holistic commercialization of the show, which expanded its cultural influence into other verticals including concerts, artist agencies, and merchandise. Songs from the show were also released on leading streaming music platforms such as Tencent Music and NetEase Cloud Music, driving record high music revenue for this IP. The third season of The Detectives' Adventures generated the highest popularity index score of any season. Additionally, "Become A Farmer" wrapped up in the second quarter, gained critical acclaim with a nomination for Best Variety Show at the well-known 28th Shanghai TV Festival Magnolia Awards.

更令人印象深刻的是我們的獨家綜藝節目的市場份額連續翻倍。第二季度推出的備受期待的節目包括我們的旗艦節目《神探奇遇記》第三季、《中國新說唱2023》、《哈哈哈哈哈哈第三季》以及《成為農民》等創新節目。這一季的《中國新說唱》大火，創下綜藝節目人氣指數最高分。此外，我們還完成了演出的整體商業化，將其文化影響力擴展到音樂會、藝人經紀公司、商品等其他垂直領域。該劇歌曲也在騰訊音樂、網易云音樂等領先流媒體音樂平台發布，帶動該IP音樂收入再創新高。 《偵探奇遇記》第三季的人氣指數創下歷季最高紀錄。此外，《當個農民》第二季殺青後，獲得好評，並獲得著名的第28屆上海電視節白玉蘭獎最佳綜藝節目提名。

We are also excited to see original content is widely recognized across TV stations in China in Q2. We distributed 30 dramas who to broad TV networks, including CCTV and provincial satellite channels with whom we have built long-term partnerships. Through these partnerships, we are able to expand our content's reach and grow its influence among different demographics. Heading into the second half of the year, we have a wide range of exciting and diversified premium content in the pipeline.

我們也很高興看到第二季度原創內容在中國電視台得到廣泛認可。我們向包括中央電視台和省級衛視在內的廣泛電視網絡發行了 30 部電視劇，並與我們建立了長期合作夥伴關係。通過這些合作夥伴關係，我們能夠擴大內容的覆蓋範圍並增強其在不同人群中的影響力。進入下半年，我們將推出一系列令人興奮且多元化的優質內容。

Our summer 2023 lineup has been bolstered by highly anticipated Asian costume dramas, including The Lotus Casebook which was the latest and the tenth drama that broke the 10,000 popularity index. Love You Seven Times also was launched and the Demon Hunter's Romance will follow. Moreover, we are broadening our presence in the crime drama genre with popular titles such as The Lost 11th Floor and Imperfect Victim, both of which have generated significant user traction and exceeded a popularity index of 9,000. Our offerings will be further enriched by the Bright Eyes in the Dark.

我們的 2023 年夏季劇陣容得到了備受期待的亞洲古裝劇的支持，其中包括最新的《蓮花案簿》，也是第十部人氣指數突破 10,000 的電視劇。 《愛你七次》也已上線，《獵魔人的浪漫》也將隨之推出。此外，我們正在通過《失落的11 樓》和《不完美的受害者》等熱門影片擴大我們在犯罪劇類型中的影響力，這兩部影片都產生了巨大的用戶吸引力，受歡迎指數超過9,000。黑暗中的明亮之眼將進一步豐富我們的產品。

For this summer season, we have seen abundant high-quality new releases in both online drama series and offline theatrical movies. As media companies fiercely compete for users' attention, our top-notch content offerings have allowed us to maintain our leading position in the drama category. This once again proves our strength in the content business.

這個暑期檔，無論是網絡劇還是線下院線電影，我們都看到了豐富的優質新片。在媒體公司激烈爭奪用戶注意力的情況下，我們一流的內容產品使我們能夠保持在戲劇類別中的領先地位。這再次證明了我們在內容業務上的實力。

For variety shows, our pipeline in the second half will consist of both sequels to classic and innovative new IPs. Season 3 of The Big Brand makes its strong comeback, and other key programs include Let's BBQ, Housework Talent, and As You Wish which integrates crossovers from our hit dramas.

綜藝節目方面，我們下半年的管道既包括經典續作，也包括創新的新IP。 《大品牌》第三季強勢回歸，其他重點節目包括《燒烤吧》、《家務達人》、《如你所願》等熱播劇跨界節目。

Our pipeline also includes other numerous exciting releases, including films, such as Fight Against Evil 2, and The Comeback, children's cartoon such as new seasons of Princess Doremi 3 and Deer Squad 3 as well as original animations including The Great Ruler, War Era: the Red Planet, and The Land of Miracles.

我們的影片還包括其他眾多令人興奮的影片，包括《反邪2》和《大反派》等電影，《哆來米公主3》和《鹿特攻隊3》新季等兒童動畫片，以及《偉大的主宰》、《戰紀》等原創動畫：紅色星球和奇蹟之地。

Moving on to advertising business? are delighted to see an accelerated recovery total ad revenue recovered to RMB 1.5 billion, up 25% annually and 7% sequentially. Both brand ads and the performance ads recorded annual and sequential growth.

轉向廣告業務？很高興看到廣告總收入加速恢復至人民幣 15 億元，同比增長 25%，環比增長 7%。品牌廣告和效果廣告均錄得年度和環比增長。

In Q2, performance ad revenue doubled year-over-year and reached its historical high, and its growth accelerated on a sequential basis. This solid performance was driven by a combination of factors: one; securing higher share of ad budgets during the strong 18th shopping festival, two; targeted and efficient operations brought higher budget from key sectors such as internet services, e-commerce and games, three; optimizing algorithms for better ad performance and monetization efficiency, four; applying generative -- generative AI to enhance ad creation and ROI.

第二季度，效果廣告收入同比翻倍，創歷史新高，增速環比加速。這種穩健的業績是由多種因素推動的：一；在強勁的第 18 屆購物節期間確保更高的廣告預算份額，二；針對性和高效的運營為互聯網服務、電子商務和遊戲等關鍵行業帶來了更高的預算，三；優化算法以獲得更好的廣告效果和變現效率，四；應用生成式人工智能來提高廣告創作和投資回報率。

Brand ad revenue also grew annually and sequentially, benefiting from several factors: one; in the high season for food and beverage sectors, two; increased ad budgets during the June 18th shopping festival comparing with last year, three; with more robust pipeline of variety shows, contributing to an expanded ad inventory, and four; and a low base effect when compared to the same period last year. We also observed increasing demand for ads related to key dramas. With the improving quality of iQIYI originals, the number of advertisers signing annual contracts and the contract rate both increased meaningfully as compared to the same period last year. Hit drama Destined attracted over 40 brand advertisers, generated highest ad revenue among all dramas launched this year.

品牌廣告收入也逐年連續增長，受益於以下幾個因素：一；在食品和飲料行業的旺季，有兩個； 6月18日購物節期間的廣告預算比去年增加了3份；綜藝節目管道更加穩健，有助於擴大廣告庫存，四；與去年同期相比，基數效應較低。我們還觀察到對與重點電視劇相關的廣告的需求不斷增加。隨著愛奇藝原創品質的提升，年度簽約廣告主數量和簽約率較去年同期均大幅增長。熱播劇《命中註定》吸引了超過40家品牌廣告商，廣告收入為今年推出的所有電視劇中最高。

Heading into the second half, we remain cautiously optimistic about the outlook of overall advertising market. While we noticed a steady rebound in consumption sentiment, we do aware that the macroeconomic recovery will have a lagging effect on the brand advertising business. That said, we still hold positive view for the long-term growth of the brand advertising market in China. We expect certain counter-cyclical sectors including food and beverage, as well as those that benefit from re-opening policies, and recovering at a relatively faster pace.

進入下半年，我們對整體廣告市場的前景保持謹慎樂觀。雖然我們注意到消費情緒穩步回升，但我們也意識到宏觀經濟復甦將對品牌廣告業務產生滯後效應。儘管如此，我們仍然看好中國品牌廣告市場的長期增長。我們預計包括食品飲料在內的某些逆週期行業以及受益於重新開放政策的行業將以相對較快的速度復甦。

Moving on to technology and products. Technical innovation is 1 of our core values. We keep improving content production and operational efficiency by driving technology innovation such as Generative AI, we have been applying a Generative AI in content production, marketing, user interaction, and received encouraging initial results. For example, through Large Language Models, scripts can rapidly be processed to extract key information, effectively accelerating the assessment process and improving budgeting and resource management.

轉向技術和產品。技術創新是我們的核心價值觀之一。我們通過推動Generative AI等技術創新，不斷提高內容生產和運營效率，我們已經將Generative AI應用於內容生產、營銷、用戶交互等方面，並取得了令人鼓舞的初步成果。例如，通過大型語言模型，可以快速處理腳本以提取關鍵信息，有效加速評估過程並改進預算和資源管理。

Our internal data shows that the accuracy rate of scene and character breakdown aided by Generative AI has exceeded 90% so far. Besides, Generative AI can quickly assess intricate story plots to enhance the user experience by improving search results, recommendations, and playback interactive experience. Moreover, Generative AI has also been helping us in creating advertising ideas and boosting monetization performance. To give you an example, performance ads using Generative AI to produce ad content increased ROI by 20 percentage points.

我們的內部數據顯示，目前Generative AI輔助的場景和角色分解準確率已經超過90%。此外，生成式人工智能可以快速評估複雜的故事情節，通過改善搜索結果、推薦和播放交互體驗來增強用戶體驗。此外，生成式人工智能還幫助我們創造廣告創意並提高變現績效。舉個例子，使用生成式 AI 生成廣告內容的效果廣告將投資回報率提高了 20 個百分點。

Next, I'd like to give you some updates on our growth and early-stage businesses.

接下來，我想向您介紹我們的成長和早期業務的一些最新情況。

I will start iQIYI Lite, which continues to generate high-quality and healthy growth. This is being driven by our improving monetization capabilities. Impressively, iQIYI Lite has already been profitable at the operating level for 3 consecutive quarters. Total revenue reached historical high in Q2, up 35% year-over-year, with membership revenue increased by 87% annually, primarily driven by the ad-supported basic membership package.

我將創辦愛奇藝精簡版，讓它持續高質量、健康增長。這是由我們不斷提高的貨幣化能力推動的。令人印象深刻的是，愛奇藝精簡版已經連續3個季度實現運營盈利。第二季度總收入達到歷史新高，同比增長 35%，其中會員收入同比增長 87%，這主要是由廣告支持的基本會員套餐推動的。

Next, let's talk about business performance in regions outside of Mainland China. Our premium content continued to grow in popularity and we saw solid membership revenue growth. In particular, Hong Kong, the U.S. and Canada had annual growth of more than 50%. The cultural influence of high-quality original Chinese dramas is growing rapidly. Revenue generated by original productions increased by 160% year-over-year. An original Chinese drama Oh No! Here Comes Trouble became the top revenue title in Taiwan, Ancient costume dramas Destined and Beauty of Resilience topped the broadcasting lists in various markets including Southeast Asia, East Asia, and North America. With plenty of premium titles in pipeline for the third quarter, we continue -- we will continue to fortify our competitive edge for developing premium Chinese video content.

接下來我們來談談中國大陸以外地區的業務表現。我們的優質內容繼續受歡迎，我們看到會員收入穩步增長。其中，香港、美國、加拿大年增長率均超過50%。中國優質原創戲劇的文化影響力快速增長。原創作品收入同比增長160%。中國原創電視劇哦不！ 《麻煩來了》成為台灣收視冠軍，古裝劇《命中註定》、《美麗人生》在東南亞、東亞、北美等多個市場收視榜首。隨著第三季度大量優質內容的推出，我們將繼續加強我們開發優質中國視頻內容的競爭優勢。

We will also continue to develop a closed loop in terms of content marketing and promotion, user growth, and subscriber acquisition, promoting Chinese content to a wider range of audience in the overseas markets.

我們還將繼續在內容營銷推廣、用戶增長、用戶獲取等方面形成閉環，將中國內容推廣到海外市場更廣泛的受眾。

In summary, we are pleased with the solid progress in our pursuit of high-quality growth. Looking forward to the second half this year, we will keep focusing on the long-term sustainability and health of our business to strengthen our competitive position in the long run. Our robust premium content pipeline will continue to create the flywheel effect, reinforcing the ongoing improvement of our business fundamentals. On top of our exceptional results, we will also closely monitor for the right opportunities and make selective strategic investments to further fuel the next wave of growth. We appreciate all your support and look forward to building greater value together.

總而言之，我們對高質量發展紮實推進感到高興。展望今年下半年，我們將繼續關注業務的長期可持續發展和健康發展，以增強我們的長期競爭地位。我們強大的優質內容管道將繼續創造飛輪效應，加強我們業務基礎的持續改善。除了取得優異的業績外，我們還將密切關注合適的機會，並進行有選擇的戰略投資，以進一步推動下一波增長。我們感謝您的支持，並期待共同創造更大的價值。

Now, let me pass on to Jun to go through our financial performance.

現在，讓我向 Jun 介紹一下我們的財務業績。

Thanks, Mr. Gong, and hello, everyone. As Mr. Gong mentioned earlier, we recorded our best ever second quarter results across multiple key financial metrics, such as total revenues and core membership services revenue, while the profits and the free cash flow remained robust. In addition, our balance sheet healthiness was further improved. Now let me walk you through key numbers.

謝謝宮總，大家好。正如龔先生之前提到的，我們在總收入和核心會員服務收入等多個關鍵財務指標上取得了有史以來最好的第二季度業績，同時利潤和自由現金流仍然強勁。此外，我們的資產負債表健康度進一步改善。現在讓我帶您了解關鍵數字。

Total revenues increased by 17% annually to RMB 7.8 billion, setting an all-time high for second quarter performance. We secured double-digit annual revenue growth across all business segments. Membership services revenue continued to serve as the most powerful growth engine with revenue exceeding RMB 4.9 billion, up 15% annually. Online advertising sped up its growth as revenues reached RMB 1.5 billion with an accelerated annual growth rate of 25%, which was fueled by the growth in both brand and performance ads, with performance ads being the key driver and to a lesser extent, from brand advertisement. The content distribution revenue and other revenues rose by 15% and 16%, respectively, on an annual basis as well.

總收入同比增長17%至人民幣78億元，創下第二季度業績歷史新高。我們在所有業務領域實現了兩位數的年收入增長。會員服務收入繼續成為最強勁的增長引擎，收入超過49億元，同比增長15%。在線廣告加速增長，收入達到人民幣 15 億元，年增長率高達 25%，這主要得益於品牌和效果廣告的增長，其中效果廣告是主要驅動力，品牌也有一定程度的貢獻。廣告。內容髮行收入和其他收入也分別同比增長15%和16%。

Moving on to cost and expenses. Our cost of revenues increased by 10% annually, among which content costs increased by 7% annually. This was primarily driven by an increase in number of original dramas and variety shows launched during the quarter. Total operating expenses grew by 11% annually, largely due to the increase in SG&A expenses. We devoted more resources in marketing as we believe this could amplify our content influence, increase subscriber attractions, and enhance the strong momentum generated by our original content offerings.

繼續討論成本和費用。我們的收入成本每年增長10%，其中內容成本每年增長7%。這主要是由於本季度推出的原創電視劇和綜藝節目數量增加所致。總運營費用每年增長 11%，主要是由於 SG&A 費用的增加。我們在營銷上投入了更多資源，因為我們相信這可以擴大我們的內容影響力，增加訂戶吸引力，並增強我們原創內容產品產生的強勁動力。

Turning to profits and cash flows. Non-GAAP operating income reached RMB 786 million, up 129% annually, positive for 6 consecutive quarters. Free cash flow reached RMB 872 million, positive for 4 consecutive quarters. During the quarter, as a part of our liability management initiatives, we repurchased a total principal amount of USD 133.6 million of our convertible senior notes due 2026. In addition, the total interest-bearing debt decreased significantly quarter over quarter. As of the end of second quarter, the company had cash, cash equivalents, restricted cash, short-term investments and long-term restricted cash included in prepayments and other assets of RMB 6.1 billion.

轉向利潤和現金流。非美國通用會計準則營業收入達人民幣7.86億元，同比增長129%，連續6個季度為正。自由現金流達人民幣8.72億元，連續4個季度為正。本季度，作為負債管理計劃的一部分，我們回購了本金總額為 1.336 億美元、2026 年到期的可轉換優先票據。此外，帶息債務總額環比大幅下降。截至二季度末，公司預付款項及其他資產中包含的現金、現金等價物、限制性現金、短期投資和長期限制性現金共計61億元。

To conclude, the second quarter results once again demonstrated that we are making solid progress in delivering high-quality growth, and we are well-positioned to generate greater value for our stakeholders in the long run.

總而言之，第二季度業績再次表明，我們在實現高質量增長方面正在取得紮實進展，從長遠來看，我們有能力為利益相關者創造更大價值。

For detailed financial data for the second quarter, please refer to our press release on our IR website. Now, we will now open the floor for Q&A.

有關第二季度的詳細財務數據，請參閱我們在 IR 網站上發布的新聞稿。現在，我們開始問答環節。

(Operator Instructions) Your first question comes from Xueqing Zhang of CICC.

（操作員指令） 你的第一個問題來自中金公司張學慶。

(foreign language) My question is related to the membership business. The [ARM] had maintain a stable growth in the past 2 quarters. So with the longer-term target for ARM, also how should we think about the outlook for the membership service in the second half of this year and the longer-term?

（外語）我的問題是關於會員業務的。 [ARM]在過去兩個季度保持穩定增長。那麼有了ARM的長期目標，我們又該如何看待今年下半年以及更長期的會員服務前景呢？

Thank you. We will invite Mr. Duan, who's responsible for the [membership service] business to answer the question.

謝謝。我們請負責【會員服務】業務的段先生來回答這個問題。

(foreign language)

（外語）

[Interpreted] Our membership business development have different focuses and strategies at different stages. In the initial establishment and rapid growth phase, the primary goal was to maximize the number of subscribers, which was focusing on growing the subbase. When subbase reached a significant size. For example, when our subbase was first in the market that exceeded RMB 100 million in 2019. Our objective shifted to membership revenue base on the revenue based on the market condition and our own strategy adjustment. So no longer purely just focus on the [subnumber].

【解讀】我們的會員業務發展在不同階段有不同的側重點和策略。在最初建立和快速增長階段，首要目標是最大限度地增加用戶數量，重點是發展子基地。當底基層達到相當大的尺寸時。比如2019年我們的分基地首次進入過億元市場時，我們的目標就轉向會員收入基礎，根據市場情況和我們自身的策略調整來確定收入。所以不再純粹只關注[子編號]。

Our membership revenue is determined by this base subscribers lifetime and ARM. Our goal is not only to focus on the current quarter revenue but to achieve long-term and substantial growth in membership revenue, taking a more long-term perspective in business planning and improving the overall health of our membership business.

我們的會員收入取決於基本訂閱者的生命週期和 ARM。我們的目標不僅是關注當前季度的收入，而是實現會員收入的長期大幅增長，從更長遠的角度進行業務規劃，改善會員業務的整體健康狀況。

(foreign language)

（外語）

[Interpreted] In the future, we'll continue to adhere to the strategy we mentioned earlier. So first, we will continue to encourage subscribers to subscribe for a long period, increasing the proportion of long-term subscribers, we have already seen continuous annual growth in the scale and also the percentage of annual subscribers, and we hope this trend will continue.

【解讀】未來我們會繼續堅持剛才提到的策略。所以首先我們會繼續鼓勵訂閱者長期訂閱，增加長期訂閱者的比例，我們已經看到規模和年訂閱者的比例都在逐年增長，我們希望這個趨勢能夠持續下去。 。

Secondly, we will continue to systematically promote membership loyalty, particularly by enhancing the value perception of long-term subscribers. We have already implemented a series of measures, for example.

其次，我們將繼續系統地提升會員忠誠度，特別是增強長期訂閱者的價值感知。例如，我們已經採取了一系列措施。

(foreign language)

（外語）

[Interpreted] First, we provided discounted price and privileges for long-term subscribers, reinforcing members understanding that the earlier and longer you subscribe the better.

【解讀】首先，我們為長期訂閱者提供了折扣價格和特權，讓會員明白訂閱越早、訂閱時間越長越好。

(foreign language)

（外語）

[Interpreted] We introduced a membership loyalty program that contains membership points system, which favors long-term loyal subscribers. We believe this will improve user retention rate and enables the platform to generate mid- to long-term revenue from extended subscribing life cycles. For example, we built out the recent The [Lotus Casebook] for Express Package program, which was a meaningful application upgrade of our membership point. During the 8-day event, over 6 million subscribers have used their membership points to access that Express Package.

【解讀】我們推出了會員忠誠度計劃，其中包含會員積分系統，有利於長期忠實訂閱者。我們相信這將提高用戶保留率，並使平台能夠通過延長訂閱生命週期產生中長期收入。例如，我們最近推出了【蓮花案例集】快遞套餐計劃，這是我們會員積分的一次有意義的應用升級。在為期 8 天的活動中，超過 600 萬訂閱者使用會員積分獲取了該 Express 套餐。

(foreign language)

（外語）

[Interpreted] Overall, we believe with the improvement in membership value perception, we believe that the membership of loyalty and retention will naturally increase, driving the long-term growth in ARM and also membership revenue.

【解讀】總體而言，我們認為隨著會員價值認知的提升，會員的忠誠度和保留率自然會提高，帶動ARM的長期增長以及會員收入的增長。

Our next question will come from Lei Zhang of Bank of America Securities.

我們的下一個問題將來自美國銀行證券的張磊。

(foreign language) We have seen that a key long-term review player launched the several content this summer with good performance. So I want to see how should we look at the change in enrollment? And how should I see the competitive advantage in content perspective? And same time, we noticed that offline entertainment actually saw strong recovery actually [movies] do we see any impact or benefit to our business.

（外文）我們看到某重點長評玩家今年夏天推出了幾款內容，表現不錯。那麼我想看看我們應該如何看待招生的變化呢？我應該如何看待內容角度的競爭優勢？與此同時，我們注意到線下娛樂實際上看到了強勁的複蘇，實際上[電影]我們看到了對我們業務的任何影響或好處嗎？

We will invite our CCO, Mr. Xiaohui Wang to answer this question.

我們將邀請我們的CCO王曉輝先生來回答這個問題。

(foreign language)

（外語）

[Interpreted] For this summer, we've seen the industry have a better supply of [high-quality] content, whether it's online dramas or offline theatrical movies. All of these are actually competing for users' attention. We are also pleased to see the flourishing of the long-form video industry. We believe with the improved from quality, the industry vitality has been activated, and we believe the market prosperity is beneficial for everyone.

【解讀】今年夏天，我們看到行業的【優質】內容供給更加充足，無論是網劇還是線下院線電影。所有這些實際上都是在爭奪用戶的注意力。我們也很高興看到長視頻行業的蓬勃發展。我們相信，隨著質量的提升，行業活力被激活，市場的繁榮對大家都是有利的。

(foreign language)

（外語）

[Interpreted] Under this backdrop, we have maintained our leading position in online drama driven by our high-quality original content. We have been leading the industry for 6 consecutive quarters in terms of the overall drama market share and also the exclusive market shares. Once again, we have with (inaudible) in Q2, which demonstrated our advantage and sustainability in the content business.

【解讀】在此背景下，我們憑藉優質的原創內容，保持了網絡劇的領先地位。無論是整體電視劇市場份額還是獨家市場份額，我們已連續6個季度領先行業。我們在第二季度再次實現了（聽不清），這證明了我們在內容業務方面的優勢和可持續性。

(foreign language)

（外語）

[Interpreted] As everyone knows the content industry is a long-term business. And the key to long-term success lies in the ability to continuously produce and supply high-quality content. In the core drama category, due to the nature of longer production cycle performance, our competitive advantage in this area is difficult to surpass in this quarter.

【解讀】眾所周知，內容行業是一個長期的行業。而長期成功的關鍵在於能夠持續生產和供應優質內容。在核心劇品類上，由於演出製作週期較長的性質，我們在該領域的競爭優勢在本季度很難被超越。

(foreign language)

（外語）

[Interpreted] Additionally, core market players are establishing differentiated advantages, focusing on original content and exclusive content. As such, the content differentiation has been greatly improved and the competition environment has been more benign and [rational].

【解讀】此外，核心市場主體正在建立差異化優勢，聚焦原創內容和獨家內容。這樣，內容差異化就大大提高了，競爭環境也更加良性和[理性]。

(foreign language)

（外語）

[Interpreted] We believe that our advantage in the content business are foreseeable and sustainable, supported by 4 strong pillars, a mature and continuously improving content production mechanism, strong operating capabilities, leading technology capabilities and our top industry talent.

【解讀】我們認為，我們在內容業務上的優勢是可預見和可持續的，有四大支柱、成熟且不斷完善的內容生產機制、強大的運營能力、領先的技術能力和頂尖的行業人才支撐。

(foreign language)

（外語）

[Interpreted] In the future, we will continue to firmly adhere to innovation, payment content, diversification and continuously seeking (inaudible) through innovation and research. Also, while ensuring the quality of projects, we will carefully plan our production to ensure a long-term and sustainable supply of diverse premium content.

【解讀】未來，我們將繼續堅定堅持創新、支付內容多元化，通過創新和研究不斷求索（聽不清）。同時，在保證項目質量的同時，我們也會精心策劃製作，確保多元化優質內容的長期可持續供應。

(foreign language)

（外語）

[Interpreted] Regarding the recovery of offline entertainment. On one hand, we will continue to focus on our strength, concentrating on the production and operation of our content online. On the other hand, the recovery of offline theatrical movies will benefit online video platform after second window movie (inaudible) will recover and increase.

【解讀】關於線下娛樂的複蘇。一方面，我們將繼續集中力量，專注於線上內容的生產和運營。另一方面，線下院線電影的複蘇，在第二窗口電影（聽不清）恢復增長後，將有利於在線視頻平台。

Our next question today will come from Alicia Yap of Citigroup.

今天我們的下一個問題將來自花旗集團的 Alicia Yap。

(foreign language) I wonder if management could share with us what's your view on the overall brand advertising market outlook for the second half this year? Have you observed any major shift of budget sentiment from advertiser? And (inaudible) modify any of your advertising strategy.

（外文）請問管理層您對今年下半年整體品牌廣告市場前景有何看法？您是否觀察到廣告商的預算情緒發生了重大變化？並（聽不清）修改您的任何廣告策略。

We'll invite our Senior VP of Brand Ad Business, Wu Gang to answer the question.

我們將邀請我們品牌廣告業務高級副總裁吳剛來回答這個問題。

(foreign language)

（外語）

[Interpreted] I see overall advertising business has been in a continuous recovery rate with brand advertising rebounded in Q2, growing both year-on-year and also quarter-on-quarter.

【解讀】我認為整體廣告業務一直處於持續復甦的狀態，第二季度品牌廣告出現反彈，同比和環比均有所增長。

(foreign language)

（外語）

[Interpreted] After economy recovery takes time to reflect in the brand advertising market, we hold us cautiously optimistic attitude towards the brand advertising market for the second half of this year.

【解讀】經濟復甦需要一段時間才能體現在品牌廣告市場上，我們對今年下半年的品牌廣告市場持謹慎樂觀的態度。

(foreign language)

（外語）

[Interpreted] Because we think (inaudible) is one of the platforms in the Chinese Internet industry that has the highest user quality as well as strong consumption power and a user's willingness to pay, so we are an indispensable choice for advertisers in enhancing their brand influence.

[解讀]因為我們認為（聽不清）是中國互聯網行業用戶質量最高、消費能力和付費意願最強的平台之一，所以我們是廣告主提升品牌不可或缺的選擇影響。

(foreign language)

（外語）

[Interpreted] We have been seeing increasing recognition from advertisers for our content and also innovative products. The contract signing amount of content marketing advertisement has been driven by top-notch drama and variety shows and there have been a strong preference and acceptance from advertising -- from advertisers for our innovative ad products.

[解讀]我們的內容和創新產品越來越受到廣告商的認可。內容營銷廣告簽約量受到優質劇集和綜藝節目的拉動，廣告主對我們創新的廣告產品產生了強烈的偏好和接受。

(foreign language)

（外語）

[Interpreted] Under the current macro environment, that advertisers from different sectors are formulating corresponding advertising strategies based on the strategic vision, and also the long-term market view, among which certain brand advertisers with forward-looking strategic vision may increase their ad spending, seizing marketing opportunities by [advertising] in the market.

【解讀】在當前宏觀環境下，不同行業的廣告主都基於戰略眼光和長遠的市場眼光制定相應的廣告策略，其中某些具有前瞻性戰略眼光的品牌廣告主可能會增加廣告支出，通過在市場上進行【廣告】來抓住營銷機會。

(foreign language)

（外語）

[Interpreted] Looking at the specific sectors, we are optimistic for the food and beverage industry, cosmetic and personal care industries as well as the transportation industry, which also includes the new vehicle -- new energy vehicle.

【解讀】從具體行業來看，我們看好食品飲料行業、化妝品及個人護理行業以及交通運輸行業，其中還包括新能源汽車。

Our next question today will come from Lincoln Kong of Goldman Sachs.

今天我們的下一個問題將來自高盛的林肯孔。

(foreign language) So my question is about the performance advertising here. What we're seeing a continued recovery of performance ads in the first half. How do we think about the second half outlook for this set of business?

（外語）所以我的問題是關於這裡的效果廣告。我們看到上半年效果廣告持續復甦。我們如何看待這一系列業務的下半年前景？

I will invite our CTO, Wenfeng to answer this question.

我會邀請我們的CTO文峰來回答這個問題。

(foreign language)

（外語）

[Interpreted] For performance ad revenue has maintained its annual growth for 5 consecutive quarters, with the growth rate continues -- with actually the growth rate that continues -- continuously accelerating and its contribution in total ad revenue has continued to increase, reaching a historical high in Q2.

【解讀】效果廣告收入連續5個季度保持年度增長，且增速持續——實際上是持續增速——持續加速，佔廣告總收入的貢獻持續提升，達到歷史最高水平第二季度高。

(foreign language)

（外語）

[Interpreted] It is expected that the performance ad sector will continue to experience strong growth in second half of this year, benefiting from our improved market capability, attracting more advertising budget from key industries such as internet services, e-commerce and gaming. Now also, we believe with the algorithm optimization and the support of Generative AI, performance ad results will bring the outperformance and also monetization efficiency to improve.

【解讀】預計受益於市場能力的提升，效果廣告行業今年下半年將繼續保持強勁增長，吸引互聯網服務、電商、遊戲等重點行業的廣告預算增加。現在，我們相信，通過算法優化和生成式人工智能的支持，效果廣告效果將帶來優異的效果和變現效率的提高。

(foreign language)

（外語）

[Interpreted] In the future, we think the performance ad advertiser will pay more attention to cost effectiveness and also the advertising performance, striving to achieve additional conversion and also to maximize returns on investment. We will -- going forward, we will continue to strengthen ad creativity, content personalization and interactivity. We will also leverage new technologies like Generative AI to lower ad production costs and also enhance any ad delivery efficiency, adapting to the ever changing market and user demand. From the ad sectors perspective, for the second half of this year, we think we have a positive outlook different sectors, for example, the traditional e-commerce platform, live streaming e-commerce, culture and entertainment, harbor and tourism and also the lifestyle food industry.

【解讀】未來，我們認為效果廣告廣告主將更加註重成本效益和廣告效果，力求實現額外轉化，同時也追求投資回報最大化。展望未來，我們將繼續加強廣告創意、內容個性化和互動性。我們還將利用生成式人工智能等新技術來降低廣告製作成本，並提高廣告投放效率，適應不斷變化的市場和用戶需求。從廣告行業來看，今年下半年，我們認為各個行業都看好，比如傳統電商平台、直播電商、文化娛樂、港口旅遊以及旅遊等。生活方式食品工業。

Our next question will come from [Maggi Ye] of CLSA.

我們的下一個問題將來自里昂證券的[Maggi Ye]。

(foreign language) Now that the company has generated very strong operating cash flow and free cash flow this quarter and has also repurchased convertible notes. Please, could you share with us more about your thoughts on the company's debt level management and plans for financial resources in the coming quarters?

（外文）現在公司本季度產生了非常強勁的運營現金流和自由現金流，並且還回購了可轉換票據。您能否與我們分享一下您對公司債務水平管理的想法以及未來幾個季度的財務資源計劃？

We will invite Mr. Jun, our CFO, to answer this question.

我們將邀請我們的CFO君先生來回答這個問題。

I think for the interest of time, I'll just answer the question in English directly. So I think this is a question that we constantly receive and the inquiry that we constantly receive from the investor community as well. And our answer is very straightforward. First and foremost, we are in a [project] on continuously improving our capital structure. We are still making -- trying every effort to make our balance sheet more healthier and more robust, and this is what we do.

我想為了節省時間，我就直接用英語回答這個問題吧。所以我認為這是我們不斷收到的一個問題，也是我們不斷收到投資者社區的詢問。我們的答案非常簡單。首先也是最重要的，我們正在進行一個不斷改善我們資本結構的[項目]。我們仍在盡一切努力使我們的資產負債表更健康、更穩健，這就是我們所做的。

And secondly, I think within our framework, doing that, there are two things that really matters. The first and the most important thing is actually to continuously generate sizable free cash flow. Just to remember, generating sizable cash flow means natural deleverage regardless of whether we will (inaudible) the debt buyback or not. And this is really the key and this is what we have been very proud to see our progress in the past couple of quarters. And the second thing is to develop a serious and comprehensive set of the choices to see what we can do to benefit our shareholders best. And these set of choices will include, for example, the debt buyback, but it will also include to explore the opportunity to invest for safe returns. And as we all know, the external environment has been extremely dynamic with a rise in interest rate and actually provide return opportunities for the company with free cash flow.

其次，我認為在我們的框架內，這樣做有兩件事非常重要。首先也是最重要的實際上是持續產生可觀的自由現金流。請記住，產生可觀的現金流意味著自然的去槓桿化，無論我們是否會（聽不清）債務回購。這確實是關鍵，也是我們在過去幾個季度取得的進展感到非常自豪的地方。第二件事是製定一套嚴肅而全面的選擇，看看我們能做些什麼來為股東帶來最大利益。這些選擇將包括債務回購等，但也包括探索投資以獲得安全回報的機會。眾所周知，外部環境極其動態，利率上升，實際上為擁有自由現金流的公司提供了回報機會。

So with that being said, I think our overall principle remains the same. We explore every opportunity to create value for our stakeholders, including our shareholders and our supporting debt holders then -- but without compromising the safety of our business for sure.

話雖如此，我認為我們的總體原則仍然是一樣的。我們探索一切機會為我們的利益相關者（包括我們的股東和我們的支持債權人）創造價值，但肯定不會損害我們業務的安全。

This will conclude our question-and-answer session. At this time, I'd like to hand back to management for closing remarks.

我們的問答環節到此結束。現在，我想請管理層做總結髮言。

Thank you, everyone, for participating in the call today, and please do not hesitate to ask us if you have any further questions. Thank you, and we will see you next quarter.

感謝大家參加今天的電話會議，如果您有任何其他問題，請隨時詢問我們。謝謝您，我們下季度見。

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.

會議現已結束。感謝您參加今天的演示，您現在可以掛斷電話了。