Sound Group Inc (SOGP) 2021 Q1 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for LIZHI's First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode.

After the management's remarks, there will be a question-and-answer session. Today's conference call is being recorded.

I would now turn the call over to your host, Effy Kang, Head of Capital Market for the Company. Please go ahead.

Thank you very much. Hello everyone and welcome to LIZHI INC.'s first quarter 2021 earnings conference call. We released our financial and operating results via newswire services earlier today and they are available online. Participants on today's call will include our Founder and CEO, Mr. Marco Lai; and our Acting CFO, Ms. Chengfang Lu.

Management 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 discussions will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as "may", "will", "expect", "target", "estimate", "intend", "believe", "potential", "continue", or other similar expressions.

Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control. The company, 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 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. LIZHI's press release contains a reconciliation of unaudited non-GAAP measures to unaudited GAAP measures.

I will now turn the call over to our Founder and CEO, Mr. Marco Lai. Please go ahead.

(interpreted) Hello everyone. Thank you for joining us today.

We are very pleased to have started the year off strong as we maintained our robust growth momentum in the first quarter of 2021, laying a solid foundation for sustainable development throughout 2021. Our overall user base continued to grow in the quarter with average mobile MAUs reaching 59.7 million while the average monthly paying users increased by 12% quarter-over-quarter to approximately 475,000. Thanks to the effective execution of our operational strategies, we also witnessed strong growth in our first quarter revenue of RMB495 million, up 34% year-over-year and 18% sequentially.

During the first quarter, we continued building and enhancing our unique and virtuous audio ecosystem, in particular, expanding our footprint overseas to further reinforce our globalization strategy. In the meantime, we continued to advance our core technological capabilities in AI, and audio transmission and processing to empower our business development. I would now like to share with you more information on recent developments.

First, our audio-centric UGC community built on the LIZHI App maintained its high level of engagement in the first quarter. Notably, our average monthly interactions maintained 3.3 billion times during the period. As of the end of March, cumulative audio content across the platform reached 273 million.

As part of our operational strategies, we continued to enrich content genres and enhance the community atmosphere surrounding hot social topics. In an effort to tap into genres that are widely sought by younger generation, including youth literature, emotional expression and ACG, we joined forces with a number of influential KOLs to create exclusive premium audio programs, and promote these programs across and outside our platform.

This effort has attracted a large number of users to join our platform to listen to, comment on, praise and share our audio content, further uplifting the vibrancy of our audio community and amplifying the community's influence. In addition, we remain committed to helping outstanding content creators grow on our platform.

For example, our "Talk Show Star Talent Program," specifically unveiled for content creators, influenced a variety of content creators to produce content and supported them to discover their vocal talents. In early April, we also successfully held our branded campaign - 2021 LIZHI Voice Festival.

This online carnival event featured various industry celebrities, quality content creators and voice enthusiasts, attracting voice lovers to come together and enjoy the fun of voices, and providing a space for more people to showcase vocal talents. During the event, there were more than 2 million people having participated in the live streaming show, and also gained widespread attention across and outside our platform.

Leveraging diversified campaigns and operational strategies, we increased user engagement and interaction in our UGC community. In the meantime, our efforts to encourage content creators from the pre-recorded audio content segment to join live streaming and audio interactions under audio entertainment segment have effectively boosted the integration of both segments. Those content creators can build upon the interactive features and the live streaming features to interact with users and therefore, our user engagement further increased and the number of our paying users has grown effectively.

As we executed our global strategy, TIYA App, our audio-based social networking app targeting overseas markets, continued its strong growth momentum in the first quarter. We are pleased to note that TIYA's mobile MAUs rose to more than 2 million in March, representing a 90% increase compared with the average mobile MAUs in the fourth quarter of 2020. In the quarter, TIYA remained among the leading social networking apps in the U.S. market.

Furthermore, we continuously work to optimize overseas operations along with iteration of products by pivoting to enhancement of user engagement and retention, extension of social scenarios, and related aspects. Our new features enabled TIYA's users to make social connections based on various interests and topics, interacting via real-time online audio, and making friends virtually with people who share their interests across a wide range of topics.

Meanwhile, we help users form and foster diverse interest circles, improving user stickiness while further strengthening the social networking capabilities of TIYA. In the first quarter, we also noticed that a number of KOLs focused on gaming and animation joined the TIYA platform to interact and play games with TIYA users through group audio live streaming. And all kinds of user-generated interest groups grew exponentially on TIYA, which greatly spur user interactions. In addition, we also saw growing engagement across user groups with different social networking topics.

We are seeing a wider spectrum of chat room topics, including gaming, animation, lifestyle, music, daily lives, et cetera. Notably, the average monthly chat rooms in the first quarter increased by 450% from the prior quarter. Based on a wide array of interests and topics, our users have made more new friends on TIYA. As of March 31st, the number of user friend connections increased by 230% from December 2020.

For users, TIYA is not only a tool to make real-time voice chat, but also gives the younger generation a space to connect with and get to know new friends. It is effectively an audio-based social networking platform for younger generation. Looking ahead, we will further broaden and optimize product features to strengthen our global footprint presence. We are poised to attract more younger generation to use and share TIYA as we remain focused on catering to their social networking needs.

Building upon our innovative operational initiatives, we will also steadily cement TIYA's network effects to form a closed-loop that support a long-term and stable user growth.

In terms of implementation of podcast offerings and applications on multiple devices, we launched our brand-new vertical content platform LIZHI Podcast in January 2021. Leveraging the features and advantages of podcast that are applicable to a variety of devices and scenarios, we are propelling our strategy roadmap to in-car audio market.

In this spirit, we have been establishing cooperations with more elite enterprises, launching LIZHI Podcast products that are compatible to the in-car scenario spanning an increasing number of vehicle models. Our new partners include more leading domestic companies such as automotive intelligence technology company ECARX, and electric-vehicle makers Enovate Motors and WM Motor.

In addition to our expansion in the in-car scenario, we are committed to increasing the diversity of our podcast content library. In particular, aesthetic art, technology, lifestyle, and entertainment are highly popular amongst our users. We also continue to cooperate with more brands and enterprises in developing branded podcast programs to help increase their brand awareness, including POP MART, Tiger Brokers, WM Motor, et cetera.

Meanwhile, in order to promote copyright protection of original podcast content created through LIZHI Podcast, we collaborated with AntChain to leverage its proprietary blockchain-based copyright solutions to provide greater copyright protection options for podcast creators.

In a bid to provide more efficient real-time connection and interaction between content creators and users, we debuted a new "Livestream Podcast" feature on LIZHI Podcast App in early April.

Apart from attracting original content creators and KOLs exclusively with LIZHI Podcast to conduct livestreaming, we also invited the core production team of the history documentary film, Dunhuang-Edge of the World, Kaixinmahua Comedy team, the punk rock band Joyside and other celebrities and groups from all walks of life to participate in our livestreaming podcasts, thereby delivering more diversified podcast listening experiences to our users. Livestreaming podcasts not only allow podcasts to be more interative so as to better increase user engagement, but also deepen the connections between podcasters and audiences.

Additionally, LIZHI Podcast also applied the "livestream podcast" feature for the in-car scenario, which was first unveiled on the smart in-car operating system of XPeng Motors. This is the first time livestreaming podcasts have been implemented in the in-car scenario.

We expect to connect and integrate in-car podcast usage with mobile podcast usage, so that users can enjoy an immersive and interactive podcast experience in the in-car scenario as well. We strive to innovate our LIZHI Podcast products to offer more diversified podcast experiences for users. We are very pleased to note that LIZHI Podcast became one of the featured apps on Apple's App Store several days earlier, making it the first Chinese podcast app recommended by Apple.

Aside from the positive progress in our businesses, we also further advanced the development and application of our in house-developed technology in the first quarter. Specifically, our in-house audio technology solution, the DOREME project, provides technology infrastructure to support more businesses.

The in-house real-time communication (RTC) technology provided by DOREME has also been applied to the "livestream podcast" feature of our newly launched LIZHI Podcast. In addition to the mobile devices, DOREME also effectively supports the application of livestream podcast in the in-car scenario, enabling users to have stable and smooth real-time communication and interactions through the internet.

This is a remarkable achievement for our in-depth research on audio technology over years. Furthermore, we continue our focus on developing comprehensive audio technology solutions, consisting of audio filters, audio quality improvement and other technologies.

We believe that strong technology capabilities are one of our key advantages to bolster LIZHI's competitiveness in the online audio space. We plan to implement an increasing share of our in-house technologies to a wider spectrum of businesses in the future, allowing users to have better listening and interactive experiences while further propelling our business growth.

In summary, we believe that our robust business development in the first quarter kicked off a great start of the year.

Going forward, we remain committed to building and enhancing a competitive audio ecosystem. We will strengthen our audio technology capabilities, drive the development of our audio community, execute our globalization strategy to create an audio-based social networking platform, and ultimately drive continuous business growth by leveraging our advantages to expand our product and service offerings across a broader range of devices.

Thanks everyone. With that, I will now turn the call over to our Acting CFO, Ms. Chengfang Lu, who will discuss our financial results in more details.

Okay. Thank you, Marco, and hello everyone. I will now provide a brief overview of our financial results for the first quarter of 2021.

First, we are very pleased to have achieved strong top line growth in the first quarter of 2021. Our robust growth was driven by our continued efforts to build a competitive audio ecosystem including a vibrant UGC community and advanced commercialization capabilities. In addition, we have strategically invested to strengthen our brand equity as we boost our LIZHI Podcast and in-car audio business, and to expand our footprint overseas through TIYA, all of which we believe will propel our business growth in the future.

In the first quarter, our total net revenues increased by 34% to RMB495.1 million from the same period of 2020. Our audio entertainment business, which contributed RMB489.3 million to net revenues in the first quarter of 2021, and represented year-over-year growth of 34%. The increase was mainly due to the continuous growth in MAUs and paying users base, as well as enhanced commercialization capabilities of our Apps.

Additionally, podcast, advertising and other revenues grew by 50% year-over-year to RMB5.7million in the first quarter of 2021. The increase was primarily attributable to the increase in the number of advertisers.

Cost of revenues was RMB370.0 million in the first quarter of 2021, compared to RMB297.4 million in the first quarter of 2020. The year-over-year increase was primarily due to an increase in revenue sharing fees to our content creators, payment handling costs and bandwidth costs, which were generally in line with the growth of the Company's business.

Gross profit was RMB125.1 million (US$19.1 million) in the first quarter of 2021, representing an increase of 72% from RMB72.9 million in the first quarter of 2020.

Non-GAAP gross profit was RMB127.7 million in the first quarter of 2021, representing an increase of 64% year-over-year.

Gross margin for the first quarter of 2021 increased to 25% from 20% in the first quarter of 2020. Non-GAAP gross margin for the first quarter of 2021 grew to 26% from 21% in the first quarter of 2020.

Operating expenses increased by 64% year-over-year to RMB197.3 million in the first quarter of 2021.

Research and development expenses were RMB56.9 million in the first quarter of 2021, representing a year-over-year decrease of 3%. The decrease was primarily attributable to decreased share-based compensation expenses, as well as declining expenses related to research and development services provided by third parties, partially offset by the growth of salary and welfare benefits.

Selling and marketing expenses were RMB120.8 million in the first quarter of 2021, representing an increase of 238% from RMB35.7 million in the first quarter of 2020. The increases were primarily due to our increased investment in branding and marketing for our products and brand name.

General and administrative expenses were RMB19.6 million in the first quarter of 2021, representing a decrease of 26% from RMB26.4 million in the first quarter of 2020. The decrease was mainly driven by a decrease in the share-based compensation expenses and other miscellaneous expenses.

Operating loss was RMB72.2 million in the first quarter of 2021, up by 51% year-over-year. Non-GAAP operating loss was RMB64.0 million in the first quarter of 2021, compared to RMB28.7 million in the first quarter of 2020.

Net loss was RMB70.0 million in the first quarter of 2021, up by 45% year-over-year. Non-GAAP net loss was RMB61.8 million, compared to RMB29.2 million in the first quarter of 2020.

Basic and diluted net loss per ADS were RMB1.50 in the first quarter of 2021, compared to RMB5.33 in the first quarter of 2020. Non-GAAP basic and diluted net loss per ADS were RMB1.33, compared to RMB0.77 per ADS in the first quarter of 2020.

As of March 31, 2021, we had cash and cash equivalents, restricted cash, as well as short-term investments of RMB318.9million (US$48.7 million).

Looking ahead, we remain committed to leveraging our strong operating capabilities and advanced technologies to further develop our global audio ecosystem and enhance brand building to consistently deliver solid long-term growth.

Okay. This concludes all of our prepared remarks today. We will now open the call to questions. Operator, please go ahead.

Thank you. (Operator instructions).

Your first question today comes from the line of Vincent Yu from Needham & Company. Please ask your question.

Thank you. Thanks, management, for taking my question. Actually, I have quite a few questions, three questions.

The first question is can management share some metrics on TIYA App and will management start to focus more on monetization for the app in 2021? For the metrics, I mean, like for example, average user time spent per day or like user demographics.

My second question is can management give us a sense of the user demographic of LIZHI Podcast app, and how much do they overlap with LIZHI main app?

My third question and that is we see increase in content investment by other players in the industry. Can management talk about size of content investments LIZHI looks to make in 2021 and how will that affect LIZHI's margin? Thank you.

(Spoken in Chinese).

(Spoken in Chinese).

Okay. I will translate for Marco. Currently, we are focused more on the user scale and engagement on TIYA. In the first quarter, our user base achieved a strong growth and the user engagement with higher levels compared with the prior quarter.

First, this was reflected by improved user stickiness and user engagement as a number of our user friend connections increased by 230% from the December 2020. Based on various interests and topics, users created a wider spectrum of the chat room topics which greatly spur user interactions and tried the higher growth of user base.

On the other hand, we noticed that both vibrancy and penetration of users in the group was gradually enhanced with the launch of our new group function which also drove the user engagement in various segments.

(interpreted) Currently, TIYA lays more emphasis on the growth of the user base as well as the user engagement. We are dedicated to providing users with our diversified social scenarios and innovative functions, while also popularizing the audio-centric social product to further satisfy the social and online entertainment needs of the younger generation.

We also remain committed to optimizing the products based on user feedback and user experience to achieve a stronger network effect. Therefore, exploring commercialization is not actually our key focus at the moment. Once our user base grows to a certain scale, we will implement commercialization attempts based on different stages of the product step by step and we will also keep the market updated of any developments in this regard.

(interpreted) The second question is about userbase of LIZHI Podcast. There is exactlly a significant difference between the user groups of LIZHI Podcast and those of the LIZHI App. In particular, LIZHI Podcast features a higher proportion of users from Tier 1 and Tier 2 cities in China with a balanced gender description.

Additionally, the proportion of users aged 25-34 is higher followed by ages 35-44. This is almost in line with the target user group we originally aimed to reach, which is young and middle-aged users in top tier cities that we intend to target through our LIZHI Podcast and application across multiple devices, and scenarios.

Moreover, we are seeing an increasing level of usage of the LIZHI Podcast from its user group, with the average daily spending time per user reaching about 80 minutes which is much higher than the LIZHI App.

Users also demonstrated stronger interest in our new podcast content offerings, while other metrics including our user subscriptions, remain relatively competitive in the podcast market.

In early April, we unveiled a new "livestream podcast" feature on LIZHI Podcast to foster the real-time interactions between audiences and podcasters, which further enhanced our user engagement and user activeness. Looking ahead, we will continue innovating LIZHI Podcast while aiming to further propel the development of the Chinese podcast industry.

Okay. the third question is about the market impact continue focused deeply on accumulating the high-quality and diversified content offerings, and also plan to make targeted investments toward building a content library that is aligned with our platform's features. Overall, we believe these investments will have a limited impact on our profitability.

First, the LIZHI App has a relatively low cost in terms of the content offering as it can leverage our unique UGC community to spur the organic growth in UGC content offerings. Furthermore, we can discover and distribute high quality content using our advanced AI technology.

In addition, LIZHI Podcast contains curated podcasts from the LIZHI App's extensive content offerings, as well as exclusive podcast offerings from podcasters we have signed.

So, we have our own strategy roadmap for exclusive content investment. In this regard, we will adopt a diversified strategies to attract to more outstanding podcasters and optimize cost structure, including discovering and cultivating more content creators with great potential, launching the innovative podcast features, adopting blockchain technology for the copyright protection to attract some more podcasters to our platform and providing podcasters with more opportunities for their future development.

In addition, it's all about the differentiate ourselves from other platforms so we can have better strength on the cost structure and investments. Moreover, we are actively developing and expanding the applicable scenarios for podcasts to help podcasters meet a broader audience base, including like in-car scenario and other smart devices.

Indeed, our strategic roadmap in aspects enable us to attract new podcasters while optimizing the content cost control and we can optimize a cost structure for more mature business step by step. Overall, I believe that our gross margin and the profitability will have a meaningful space to grow.

Thank you.

Yes. This concludes my answer.

Thank you.

And our next question today comes from the line of Vicky Wei from Citi. Please ask your question.

(Spoken in Chinese).

Thanks for taking my question. My question is about the scale of investment for LIZHI Podcast and TIYA and its implications for the margin profile. Thank you.

Thank you, Vicky. Let me share some information about this question. Actually, in the first quarter, along with the launch of our new product and our strategy to bolster podcast application across multiple devices, we increased investment in branding and marketing. We have also invested in TIYA's expansion in overseas markets. But the investment still is relatively small as states.

All this led to an overall increase in selling and marketing expenses compared to the prior quarter, which also lead to our net loss in this quarter. Additionally, we also paid a close attention to our content offerings on LIZHI Podcast, which also increased content costs compared to the prior quarter. But I believe it has a limited impact on our overall margin. And, as Marco mentioned before, as we have diversified podcaster resources, including the content creator from LIZHI App, and some exclusive podcasters we signed additionally, I think the overall investment is limited.

In the future, we were focused more on local operating overseas, and in general, our investment at every stage will always be based on the company's long-term development plans, it will likely have some impact on our margin in a short time. But we realize our efforts towards efficient brand promotion can help the company established for higher reputation, and amplify brand awareness among users, which is beneficial for our long-term diversification of our layout and acceleration of our business growth.

So in future we'll undertake dynamic adjustments for each business segment and diversify podcast matrix to further optimize our cost structure and enhance overall operating efficiency. Thank you.

(Spoken in Chinese).

(Spoken in Chinese).

(Spoken in Chinese).

And our next question today comes from the line of Ivy Liu from Credit Suisse. Please go ahead.

Thank you, management, for taking my question. I have a quick one here. Could we have some color on the update on the DOREME project? And thinking about longer term, how do we think the technology development will continue to feel the business growth for LIZHI? Thank you.

(Spoken in Chinese).

Okay. I will translate Marco's answers. The first question is about development on the DOREME project. DOREME is our in-house developed audio technology solution, providing real-time online audio and audio filters, audio research and optimization.

In the first quarter, we achieved the great progress for our in-house audio technology. The DOREME project also provided technology infrastructure to support more businesses. Our in-house audio technology has also been applied to the "livestream podcast" feature of the LIZHI Podcast, ensuring the stable and smooth real-time audio transmission. Particularly, in addition to the mobile devices, we have also made tailored configuration for the in-car scenario, further supporting the "livestream podcast" feature for the in-car use, including the optimization of the echo suppression system to improve the sound quality and audio effects, because like in the in-car scenario, the audio transmission with the echo suppression is quite different with the mobile devices, thereby we can delivering of competitive sound effect and user experiences with our in-house development technology.

(interpreted) Going forward, we will continue to advance our in-house technology. Actually, besides the DOREME project, we also have other in-house development technologies that we might disclose in the future and the DOREME project will also be optimized and upgraded to empower more business lines.

In the long run, our in-house technology is able to improve our competitiveness in the market. Instead of relying on third-party technology platform, we hope to apply more in-house technologies to further optimize our cost structure and offering to improve the operating efficiency and provide more personalized audio experiences to our users while achieving a scalable business growth because when we use the third-party technology platform, it's hard for us to provide the personalized audio experience to our users.

(Spoken in Chinese). Thank you.

Thank you.

And our last question today comes from the line of Feiya Zhao from Haitong. Please ask your question.

(Spoken in Chinese).

I will translate for myself. Thanks, management, for taking my question. I have a very quick question regarding your future plan and focus especially for the audio community LIZHI app. Thanks.

(Spoken in Chinese).

Thank you, Feiya. And I will translate for Marco. The question is about our strategy. So firstly, our overall strategy will be based only on our audio-centric ecosystem. Through the diversified footprint and advancements of our technology infrastructure to create more growth potential and drive the continuous growth of the overall business.

Firstly, our flagship product, LIZHI App, has grown into a comprehensive community which combines diversified UGC audio content and abundant audio entertainment features, also providing users with wide-ranging tools for audio content creation, audio content sharing and interaction.

In the first quarter, our overall average mobile MAUs increased to 59.7 million, most of which generated from the LIZHI App also indicates that LIZHI App remains further commercialization potential. In the next, by leveraging our operational strategies, we will further cultivate our highly engaged community and enhance the integration of audio entertainment and the pre-recorded content segments to boost the user penetration in the audio entertainment segment. Meanwhile, we'll continue improving the conversion of the paying users to achieve the solid top line growth.

Our years of experience in the audio entertainment provides widespread support and sets the stage for our global expansion. As mentioned earlier, we'll leverage our technical and operational advantages to further boost our global strategic footprint. We'll also continue building the podcast ecosystem and improve the application of podcasts across multiple devices. Recently, we have been discussing the collaboration opportunities with more auto companies and we'll implement our products in more auto systems.

Meanwhile, we'll continue the podcast innovation to provide better user experiences and create more development opportunities for our podcast content creators.

In summary, LIZHI App will continuously drive our top line growth and TIYA business in overseas market provides great potential for our globalization expansions, for the LIZHI Podcast, we think it provides more potential in the podcast markets in the era of the electric vehicle market.

I'm very confident in LIZHI's future developments. With our years of operating experience and the strong technical capabilities in the online audio industry, we're poised to capture the market opportunities and create more business value. I also expect to continue achieving stronger business growth for the full year.

Thank you.

Thank you.

Due to time constraints, that does conclude today's question and answer session. I would now like to hand the call back to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact LIZHI's Investor Relations through the contact information provided on our website at ir.lizhi.fm or our TPG Group Investor Relations. Thank you.

Thank you. Thank you, everyone.

Thank you, everyone.

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

Editor: Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.