Sound Group Inc (SOGP) 2022 Q4 法說會逐字稿

Hello, ladies and gentlemen.

Thank you for standing by for LIZHI Inc.'s fourth quarter and fiscal year 2022 earnings conference call.

(Operator Instructions) Today's conference call is being recorded.

I would now like turn the call over to your host, Effy Kang, Head of Capital Markets for the company.

Please go ahead.

Thank you very much.

Hello, everyone, and welcome to LIZHI Inc.'s fourth quarter and fiscal year 2022 earnings conference call.

We released our financial and operating results via newswire services earlier today, and they are available online.

Participants on today's call will include our Founder and CEO, Mr. Marco Lai; our COO, Mr. Zelong Li; and our Acting CFO, Ms. Chengfang Lu.

Mr. Li and Ms. Lu will begin with prepared remarks, and the call will conclude with a Q&A session.

As a reminder, this conference is being recorded.

In addition, an 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 US Private Securities Litigation Reform Act of 1995.

These statements typically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions.

Forward-looking statements involve inherent risks and uncertainties.

The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control.

The company, its affiliates, advisors, representatives, and underwriters do not undertake any obligation to update this forward-looking information except as required under the applicable law.

Please also note that LIZHI's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures.

Please refer to LIZHI's earnings press release for a reconciliation of unaudited non-GAAP measures to unaudited GAAP measures.

I will now turn the call over to our COO, Mr. Zelong Li.

Please go ahead.

(interpreted) Hello, everyone, thank you for joining our fourth quarter and full year 2022 earnings conference call.

First of all, on behalf of the LIZHI team, I would like to express our deep gratitude to all our shareholders and investors for your continued support.

In the past year, despite the challenges posed by headwinds in the global macro environment, we remained committed to steadily promoting our global business development and expanding our diversified product matrix at home and abroad.

We also strove to harness the power of technology innovation and integrate the latest advancements of cutting-edge technology into our business.

At present, we have applied voice AI technology in various existing products and launched an array of innovative AI features, including chatbots.

Going forward, we will continue to upgrade our technologies and product features and advance the application of AI chatbots in our products.

We aim to provide users with an innovative, online social companionship experiences by building an AI chatbot platform and creating more engaging, fun, and interactive AI chatbot usage scenarios that foster emotional connections, ultimately promoting our global business development.

In 2022, we proactively implemented refined operational strategies, and consistently enhanced operating efficiency through our development of core proprietary technologies and optimization of our organizational structure.

Notably, while maintaining stable full-year revenue growth, we also achieved a significant increase in profitability.

In the fourth quarter, our total average mobile MAUs amounted to 50.8 million, average monthly paying users totaled 491.8 thousand, and revenue reached a new high of RMB588 million.

As a result of our operational efficiency optimizations, both the amount of our operating expenses and their proportion of the total revenues decreased quarter-over-quarter and year-over-year.

More excitingly, our net income surged 58% sequentially and more than 250% year over year to RMB31.4 million.

In 2022, our full-year revenue increased to RMB2.185 billion while our full-year gross margin grew by 400 basis points to 33%.

We are delighted by our robust profit growth in 2022, with full-year net income reaching RMB86.5 million, further demonstrating the sustainability of our business model and laying a solid foundation for our long-term growth.

In terms of our audio entertainment business, we incubated and launched an array of audio entertainment products in 2022, covering users from broader verticals and bringing them a larger variety of interactive entertainment experiences.

To that end, we integrated inventive social features, such as avatars, to enrich product functions and enhance our products' interactivity and entertainment value.

We also homed in on top trending topics and cooperated with content creators to launch a variety of specialized audio programs throughout the year.

Leveraging various audio formats, including audio livestreaming and podcasts, we provided users with unique and compelling interactive audio experiences.

Meanwhile, we held a series of IP-based annual competitions and various different online campaigns to further enhance our user interaction and community atmosphere.

During this period, the LIZHI App was spotlighted numerous times as a featured app in the Apple's App Store.

In terms of business innovation, we have been researching and exploring voice AI and the related technologies for years, and have made breakthroughs in Automatic Speech Recognition ASR; text-to-speech TTS; AI voice changer and AIGC, among others, laying the technical groundwork for commercial application of these technologies across our business.

We are pleased to share that thanks to our advanced technological innovation capabilities as well as our comprehensive business strengths, LIZHI has been named among China's top 100 Internet companies for the fourth consecutive year at the end of 2022.

At present, we have combined our existing AI technology capabilities with natural language processing NLP and other cutting-edge technologies to launch innovative entertainment features, including AI chatbots.

For example, we recently utilized the API of a large language model developed by OpenAI to launch the TIYA Bot module in our TIYA App, providing users with an online AI conversational function.

In addition to the application of open-source models, in February, we developed an online audio chatbot demo integrating NLP technology with voice AI technology including ASR and TTS.

And just last week, we launched the audio chatbot, Xiao Zhi, in our audio product, providing users with a novel intelligent audio chat experience.

Moving forward, we will continue to leverage pioneering technologies, such as AIGC, NLP, and voice AI, and the integration of our in-house self-developed technology and open-source models.

Utilizing the rich resources and operating experience LIZHI has accumulated in the online audio field, we will continuously fine-tune and optimize our AI models through supervised learning and reinforcement learning, enabling us to design interactive chatbots with more engaging and fun features.

We will also further expand their usage scenarios, providing users with a brand new social interactive experience.

Meanwhile, we will continue to upgrade our social products with more diverse features and functions, build a comprehensive interactive AI chatbot platform, and promote the development of our global business.

Overall, our achievements and the experience we accumulated in 2022 have laid a solid foundation for the Company's long-term sustainable development.

Stepping into 2023, we will unwaveringly execute our globalization strategy, establish an efficient global management system, empower business innovation through the advancement of frontier technologies, and promote the application of technologies such as the AIGC, voice AI, and AI chatbots in our business, and accelerate global business expansion.

We are confident in the coming year's prospects and look forward to creating greater value for our shareholders and society at large.

Thank you all.

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

Okay.

Thank you, Zelong, and hello, everyone.

We are delighted to report a set of solid financial results for the fourth quarter and full year 2022.

Thanks to our ongoing cost structure optimizations and operational efficiency enhancements, our net income in the fourth quarter surged 252% year-over-year and 58% sequentially to an all-time high of RMB31.4 million.

More excitingly, for full year 2022, our gross margin was 33%, up 400 basis points year-over-year, and net income increased to RMB86.5 million, compared with a net loss of RMB127.3 million in the previous year.

We're encouraged by the robust growth in profitability driven by our efficient operations and strong execution.

Entering 2023, we are committed to unleashing greater commercialization potential and delivering sustainable growth.

Now, I would like to provide a brief overview of our financial results for the fourth quarter of 2022.

In the fourth quarter, our total net revenues were RMB587.6 million, representing an increase of 5% year-over-year, primarily due to the growth in average user spending on our audio entertainment products.

Cost of revenues was RMB404.1 million in the fourth quarter of 2022, representing an increase of 7% year-over-year, primarily due to an increase in revenue sharing fees to our content creators and the company's revenues growth, partially offset by decreases in salary and welfare benefits related to decreases in our operation's headcount as well as a decline in other miscellaneous costs and share-based compensation expenses.

Gross profit was RMB183.6 million in the fourth quarter of 2022, compared to RMB181.9 million in the fourth quarter of 2021.

Non-GAAP gross profit was RMB185.1 million in the fourth quarter of 2022, compared to RMB184.4 million in the fourth quarter of 2021.

Gross margin for the fourth quarter of 2022 was 31%, compared to 32% in the fourth quarter of 2021.

Non-GAAP gross margin for the fourth quarter of 2022 was 31%, compared to 33% in the fourth quarter of last year.

Operating expenses were RMB158.1 million in the fourth quarter of 2022, compared to RMB176.6 million in the fourth quarter of 2021.

Research and development expenses were RMB63.7 million in the fourth quarter of 2022, compared to RMB73.5 million in the fourth quarter of 2021, primarily due to the decrease of the expenses related to research and development services provided by third parties and share-based compensation expenses, as well as decreased salary and welfare benefits expenses related to a decrease in the number of our research and development staff.

Selling and marketing expenses were RMB67.7 million in the fourth quarter of 2022, compared to RMB70.9 million in the fourth quarter of 2021, primarily attributable to a decrease in branding and marketing expenses, as well as decreased salary and welfare benefits expenses related to a decrease in the number of our marketing staff.

The company will evaluate and adjust its marketing strategy and budget based on the company's performance, operational needs, and market conditions.

General and administrative expenses were RMB26.7 million in the fourth quarter of 2022, compared to RMB32.2 million in the fourth quarter of 2021, mainly driven by decreases in professional service fees, share-based compensation expenses, and other miscellaneous expenses, partially offset by the increased salary and welfare benefits expenses related to an increase in the average salary.

Operating income was RMB25.5 million in the fourth quarter of 2022, compared to RMB5.4 million in the fourth quarter of 2021.

Non-GAAP operating income was RMB31.1 million in the fourth quarter of 2022, compared to RMB14.7 million in the fourth quarter of last year.

Net income was RMB31.4 million in the fourth quarter of 2022, compared to RMB8.9 million in the fourth quarter of 2021.

And Non-GAAP net income was RMB37.1 million, compared to RMB18.3 million in the fourth quarter of 2021.

Basic and diluted net income per ADS were RMB0.60 in the fourth quarter of 2022, compared to RMB0.17 in the fourth quarter of 2021.

Non-GAAP basic and diluted net income per ADS were RMB0.71 in the fourth quarter of 2022, compared to RMB0.36 in the fourth quarter of 2021.

As of December 31, 2022, we had cash and cash equivalents, short-term investments, and restricted cash of RMB689.9 million.

Okay.

This concludes all of our prepared remarks today.

I will now open the call to questions.

Operator, please go ahead.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions) Vicky Wei, Citi.

(spoken in Chinese) Thanks, management, for taking my question.

My question is, what is company strategy in the post-pandemic era in 2023?

Does management notice any changes in user behavior in the past three months post-COVID?

And any stepped-up investment to drive business growth in this year?

Thank you.

(interpreted) This question is answered by Marco, and I will translate for Marco.

Thank you, Vicky.

In terms of our overall strategic plans, we will further propel our global expansion strategy forward in 2023, promote the application of AI chatbots in our global business, and target more user growth through our diverse product matrix to ultimately achieve a steady growth of our global business.

In the past few years, we've been exploring and developing fundamental core technologies pertaining to voice AI and other aspects.

And recently, leveraging the cutting-edge technologies, we have utilized the voice AI and the NLP, among other technologies, in our products.

And for instance, we've launched the innovative functions in our product, including the TIYA Bot and voice chatbot, Xiao Zhi, on LIZHI App, providing users with new online social interaction experiences.

And we are also leveraging the technology to empower our business development.

And using AIGC and voice AI technology, we plan to launch a customized social chatbot product that convey emotions and connect with users, as well as innovate more product features to enrich our product matrix while continuing to expand our commercialization models.

For the changes in user behaviors, in my opinion, the pandemic has made more people accustomed to online entertainment and communication.

And it also increased the user trend for online companionship and emotional connection.

Additionally, we can see that technology is continuously developing.

And recently, the GPT 4.0 model is published.

The new development of technology also brings more possibilities for product innovation.

And the recent reaction of the whole market also shows that users are very receptive and enthusiastic about new things.

Next, we will further develop our AI chatbots and upgrade product features for companionship, fostering emotional connections to bring innovative online companionship experiences to more users.

And our product positioning is in line with the needs of users in the post-pandemic era.

And I believe it will also bring greater growth potential for our business.

In terms of investment, our business strategy in 2023 is to promote a global business expansion through our diverse product matrix with a focus on AI chatbots.

We have been exploring and investing in AI chatbot technology for years and making investments every single year.

In addition, we expect to increase the revenue scale by launching monetization models in this space.

And we expect to new revenue streams in 2023, but we expect the overall investment is under our management and control.

In addition, we are improving our operational efficiency and reducing the cost of scale expansion through the enhancement of our versatile technology platforms and operational system infrastructure, as well as the application of self-developed technologies.

And we can see it from our performance in 2022, on the marketing front, we aim to reduce the overall user acquisition costs by enhancing the network effect of our products and promoting the organic growth.

In general, we expect the investment in 2023 to increase in line with our business growth, but the overall proportion will remain at a reasonable level.

Thank you.

Next question, please.

Thank you.

Serena Lee, China Securities.

(spoken in Chinese) Thanks for taking my question.

Recently, we have seen that company has some progress in chatbot and AI area, like publishing Xiao Zhi and TIYA Bot, et cetera.

So, could management share more specific plans and strategy regarding to the chatbot area?

Thank you.

(interpreted) Okay.

This question is answered by Marco.

In terms of the chatbot development, we actually started working on voice chatbot technology as early as 2018.

And during these years, we have accumulated valuable experience in these technologies and have utilized this technical expertise in our products.

And recently, we have made breakthroughs in voice AI technology, such as ASR and TTS.

In addition, our years of experience in social audio and audio entertainment also give us a great advantage in training and launching innovative chatbot that can convey emotion.

So we will further leverage our years of experience and technological strengths to promote the application of chatbots in our business and build an AI chatbot platform, providing users with a new online and more personal companionship experience and ultimately enhancing our differentiated and competitive strengths.

Moving forward, we will also launch chatbot functions and features in various products based on our product positioning and the unique demands of local users in various markets globally.

In the meantime, we plan to develop more innovative features to adapt to different user scenarios.

For example, we may expand on the product functions by combining the advertised voice chat and functional bot, while also introducing corresponding monetization models.

In addition, we may launch a wider array of independent product lines focused on the AI chatbot, which would upgrade products and enrich our product matrix and bring greater business growth potential.

Yes.

Thank you.

Next question, please.

Thank you.

Xingyun Wang, Huatai.

(spoken in Chinese) We see LIZHI's monthly ARPPU achieved solid growth in the past few quarters.

Could management share some color on measures we take?

And how should we think about the growth trend in the long run?

The second question is that LIZHI's profitability continues to improve.

And looking ahead, do you have any outlook for the profit margin and how can we achieve that?

Thanks a lot.

Okay.

Thank you.

(interpreted) The first question is about the ARPPU.

So far, our revenue is actually primarily generated from the audio entertainment business.

And we mainly focused on two aspects to improve the ARPPU.

In terms of operational strategies, we continued to refine our innovative product functions and features; and we also diversify our operating activities, which enhance our user engagement and promote the user payment conversion rate.

And for example, we launched customized virtual gifting options and avatars to expand the paying scenario.

And we also lowered the threshold to participate in these activities so we can improve the user engagement and promote connections between users and the content creators, thus enhancing users' willingness to pay.

So in terms of marketing strategies, through optimizing promotional models and promotional material with an intelligent advertising system, we implemented precise user acquisition to reach the core user group with stronger spending power and willingness to pay and to promote payment conversion rate.

In terms of the long-term growth trend, we hope to diversify our revenue streams through new business models, such as AI chatbots, which may bring additional revenue sources, such as subscriptions and value-added services.

Overall, we are confident that we can achieve more diversification of our revenue streams as well as steady growth of our overall revenue scale in the future.

And we do expect to see some changes in 2023.

We achieved our overall profitability in 2022.

And in the future, we believe that our profitability and profit margin will further improve in the long term.

First of all, our domestic business still has huge growth potential.

With an increasing online audio user penetration rate, the market scale is also expanding further.

And we will continue to expand the core user groups in the audio entertainment sector and increase users' willingness to pay through a diverse range of operational activities and the innovative functions. promoting the growth of the user payment conversion rate and revenue.

And in terms of the cost structure, through refined user acquisition and operational strategies, along with the empowerment of our versatile technology platform, operational systems, and our self-developed technologies, we will continue to improve our overall operating efficiency, and achieving sustainable profitability.

As for the global business, we hope to bring more revenue contribution by enriching our product matrix and also diversifying our business models, along with the application of AI chatbots.

We will also make dynamic adjustments in resource allocation based on different stages of business development.

In the long term, we are confident in continuously improving our overall profitability.

(spoken in Chinese) Thank you.

That's all.

All right.

Thank you.

There are no further questions now.

So I'd like to turn the call back to the company for closing remarks.

Well, 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 The Piacente Group investor relations.

Thank you.

This concludes the conference call.

You may now disconnect your lines.

Thank you.

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.