Rongjie Dong - CEO Henry Sha - CFO Unidentified Company Representative -.

Thomas Chong - Credit Suisse Hillman Chan - Citi Group Eileen Deng - Deutsche Bank Jerry Liu - UBS Piyush Mubayi - Goldman Sachs Alex Liu - China Renaissance.

Hello everyone and welcome to the Third Quarter 2018 Earnings Conference Call of Huya Inc. The company's financing and operational results were issued earlier today and are posted online. You can also view the earnings press release by visiting the IR website at ir.huya.com. A replay of the call will be available on the IR website in a few hours.

Participants on today call will be Mr. Rongjie Dong, Chief Executive Officer of Huya and Mr. Henry Sha, Chief Financial Officer. Management will begin with prepared remarks and the call will conclude in a Q&A session.

Before we continue please note that today's discussion will contain forward-looking statements made under Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherit risks and uncertainties as such the company's result may be materially different from the views expressed today.

Further information regarding this and under risks and uncertainties is included in the company's prospectus and other public filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required on the applicable law.

Please also note that we have earnings press release and this conference call include discussion of our audited GAAP financial information, as well as our audited non-GAAP financial measures. Huya's press release compares the reconciliation of the unaudited fact non-GAAP measures to the audited most directly comparable GAAP measures.

I will now turn the call over to our CEO, Mr. Rongjie Dong. Please go ahead..

Hello everyone. Thank you for joining us today. We are happy to continue to build on our momentum from the first half of the year and we delivered strong financial and operational results for the quarter. Revenue in the quarter grew 118.8% year-over-year to RMB1.28 billion exceeding our expectations.

We also experienced the meaningful growth in MAUs, highlighted by continued strength in mobile MAUs driven by our revenue growth we generated a positive net income on both GAAP and the non-GAAP basis. And the Q2 quarter our positive non-GAAP net income of RMB121 million.

We focused heavily on both the financial 2018 our content operations through our intense collaboration with gaming companies. Our increasing library of e-sports content and high quality professionally generated content which led to our strong MAU growth in the quarter.

In addition, our effective mobile strategy demonstrated higher growth in mobile MAUs and now make us up 50% of our total MAUs. Those mobile users also contributed more than 80% of our live streaming revenue in the quarter. We have seen solid use of growth and that will total experience the increased user engagement on our platform.

The average daily time spent on our mobile app grew to over 110 minutes per day in the third quarter of 2018 from 99 minutes in the fourth quarter of 2017.

So our partnership with broadcasters and talent agencies we are committed to continue actually fostering our content ecosystem and the facilitating use into action with more professional e-sports areas. Through these efforts we are creating a more vibrant community driven quarter [indiscernible].

With growing trend our hardcore gamers and occasional gamers, the gaming e-sports viewers. We have leveraged our exceptional resources and [indiscernible] in the live streaming industry to make e-sports content are important part of our growth strategy.

We broadcasted more than 110 e-sports tournament and events including some of the major border class tournaments and selected over 510 million viewers on Huya platform during the quarter.

Notably we introduced a highly innovative and exclusive first pose in camera view our China Championship team 4M during the PDI broadcaster allowing viewers to enjoy the exact same view as a TV while OL season 8 concluded we experienced significant growth in the Huya network compared to the previous year’s season 7.

We continue to enhance our leadership position as our dynamic and growing platform providing the highest quality expenses-sport content. We also recognized our credibility’s and know-how for organizing large scale e-sports tournaments as our key competitive strength.

In the third quarter, we organized over 10 e-sports tournaments covering major game titles in China. Additionally we successfully partnered with international gaming companies and identify the numerous obtain - to organize e-sports tournament.

One of them holds through our strong collaboration with Huya we successfully organized the Huya definitely cut - feel busy tournament in October which was operationally recognized by [PUBG] China invitational season to as our call expiring event. The number of viewers grew significantly from other to the previous season.

In addition, the user interaction also increased which was demonstrated by our record numbers of ballot test posted during the tournament. With growth realization trend in e-sports, we found that more and more Chinese gain enthusiast watching international e-sports tournament and that interacting was in connection with e-sports professionals.

To address this chat, we partnered with partner with global e-sports players and auto actively participated in e-sports team operating. In September, we announced plans to operate our newly established teams and joined the Overwatch League, the global professional e-sports league created by Activision Blizzard.

We expect to leverage this partnership to strengthen our presence in the global e-sports sector. Overall we are pleased with results our strategic focus on e-sports and are excited about the potential for continued growth in the business.

In our vision to our e-sports efforts, we made a significant progress in developing professionally generated content. For example the peak by two index number for our sales produced top line season 2 was 10 times higher than the previous season and far better than similar content as platform.

Regarding the evolving regulating, we continue to closely monitor the environment. We are using input complaints with all acquired licenses for our live streaming business.

We also take our content policy very seriously and during the quarter took actions against several broadcasters who violated our content policy by shutting down their channels and removing their content. We continue to drive improvement and enhancements to our content audit system and technologies and add expertise to our monitoring team.

We believe regulating help us foster a healthy environment for the cloud streaming industry to flourish and that we will continue to support the involving regulatory framework in every way we can. In summary, we remain focused on generating dynamic and relevant content for our users.

As a leading game live streaming platform in China, we continue to see tremendous opportunity for growth and we are excited about our future prospects. With that, I will now turn the call over to our CFO, Henry to share the financial details from the quarter..

Thank you, Mr. Dong. Hello everyone, this is Henry. We delivered strong MAU growth, as well as revenue growth which exceeded our guidance for the quarter. This further solidified our leadership position in China's game live streaming industry.

Our focus on delivering first class e-sports content and give us differentiated services continue to drive user engagement and improve user retention. In the third quarter, paying users grew by 37.8% year-over-year, outpacing overall MAU growth.

Also more than 70% of paying user paid for gaming related content which accounted for over than 50% of total live streaming revenue. As we continue to grow our revenue while minimizing our bandwidth costs by utilizing new technologies. We have generated 260 basis points year-over-year improvement in gross margin.

In addition, our continuous improvement in operating efficiency helped us achieve net income compared to net loss in a year ago period. We made a considerable investment in e-sports and the overseas market in the quarter.

But despite these upfront investments, we are pleased to deliver healthy financial results which demonstrate the potential of scalable growth driven by e-sports related business and game live streaming content globalization.

In addition, our results support the users from preference and demand when new online in payment downloads, particularly for e-sports content.

As we complete 2018, and position ourselves for the future we believe our robust platform, differentiated content, and encouraging operational results position us well to deliver solid returns for our stakeholders.

Now let me briefly go over the financial results for the third quarter, but in the interest of time, I will not walk through line-by-line on this call. Please refer to more details in our earning release. Total revenues for third quarter of 2018 increased by 118.8% to RMB1276.6 million from RMB583.5 million in the same period of 2017.

Live streaming revenues increased by 120.2% to RMB1216.5 million in the third quarter of 2018. From RMB562.4 million in the same period of 2017, primary due to the increase in spending for paying user and the increase in the number of paying users of Huya's platform.

The increase in the number of paying users was primarily driven by the Company's mobile strategy, diversification of content offerings and the continued efforts in converting active users into paying users.

Advertising and other revenues increased by 92.9% to RMB60.1 million in the third quarter of 2018 from RMB31.2 million in the same period of 2017. This increase reflected the Company's continued efforts to expand the advertising services and monetizing the traffic and its streaming content with its business partners.

We streamline other product lines to concentrate more resources on the advertising business to achieve higher growth rate.

Cost of revenues increased by 112.2% to RMB1082.9 million in the third quarter of 2018 from RMB510.3 million in the same period over 2017, primary attributable to the increase in revenue sharing fees, content costs, and bandwidth costs in addition to higher salaries and welfare costs.

Revenue sharing fees and content costs increased by 125% to RMB844 million in the third quarter of 2018 from RMB375.1 million in the same period of 2017 primary due to the increase in virtual items revenue sharing which was in line with our live streaming revenue growth and continued spending in e-sports content, and content creators in both domestic and overseas markets.

Bandwidth costs increased by 66.8% to RMB174 million in the third quarter of 2018 from RMB104.3 million in the same period of 2017, primarily due to an increase in bandwidth usage as a result of a larger user base on Huya's platform and an improvement in live streaming video quality partially offset by improved efficiency and bandwidth utilization by deploying new technologies in content distribution.

Gross profit increased by 164.5% to RMB193.7 million for the third quarter of 2018, from RMB73.2 million in the same period of 2017. Gross margin increased to 15.2% in the third quarter of 2018 from 12.6% in the same period of 2017, primary due to our enhanced monetization efforts continued to leverage our economic of scale and technology innovation.

Research and the development expenses increased by 52.6% to RMB74.6 million for the third quarter of 2018 from a RMB48.9 million for the third quarter of 2017, mainly attributable to the increase in salaries and welfare of research and development personnel and the share base of compensation expenses related to the share award newly granted in the third quarter of 2018.

This increase also demonstrated our continued investment in new technologies and new product for future growth.

Sales and marketing expenses increased by 191.6% to RMB61.7 million from the third quarter of 2018 from RMB21.2 million for the third quarter of 2017, mainly attributable to the increase of marketing and promotion expenses due to enhanced efforts in promoting Huya's brand awareness and e-sports content, as well as cooperating with various marketing channels during the summer holidays.

Excluding share based compensation expenses, our non-GAAP sales and marketing expenses as a percentage with total revenues was 4.8% in the quarter. We will continue to grow our user base organically by creating more value in our content eco-system for our user community.

General and administrative expenses increased by 19.7% to RMB71.2 million for the third quarter of 2018 from RMB37.3 million for the same period of 2017, mainly due to the increase in share based compensation expenses related to the share awards newly granted in the first quarter of 2018 and a salaries and welfare of management and personnel.

Non-GAAP operating income was RMB61.5 million for the third quarter of 2018 compared with non-GAAP operating loss of RMB13.1 million in the same period of 2017. Net income attributable to Huya was RMB66.8 million for the third quarter of 2018 compared with a net loss of RMB29.3 million in the same period of 2017.

Non-GAAP net income attributable to Huya in the third quarter of 2018 was RMB121 million compared to a non-GAAP net loss of RMB25.4 million in the same period of 2017. Non-GAAP diluted net income per ADS was RMB0.65 for the third quarter of 2018 compared with non-GAAP diluted net loss for ADS of RMB0.35 for the same period of 2017.

As of September 30, 2018, the company had a cash, cash equivalent short-term deposits and a short-term investments of RMB5873.6 million. Net cash provided by operating activities was RMB237.7 million for the third quarter of 2018 compared with net cash provided by operating activities of RMB87.2 million in the same period of 2017.

Now to our business outlook for the fourth quarter of 2018, we are currently expect total revenue to be between RMB1400 million and RMB1440 representing a year-over-year growth between 88.9% and 94.3%. This forecast reflects our current and preliminary views on the market and operational condition, which are subject to change.

This concludes our prepared remarks. We will now open the call to question. Operator, please go ahead..

[Operator Instructions] Your first question comes from Thomas Chong with Credit Suisse. Please go ahead..

I have two questions. My first question is about our 2019 outlook. Given that we see METCO headwinds - just want to get a sense about how we should think about our outlook next year and also our e-sport strategy as well. And my second question is about our MAU growth. We have seen the growth momentum for our users is very solid.

Just want to get a sense about how we should think about the trend in the coming few years. Thank you. [Foreign Language].

Thank you. The management team will internally discuss and revert back very shortly. Thank you..

Your next question comes from Hillman Chan with Citi Group. Please go ahead...

Sorry, if could put Thomas Chong back in. We have an answer to the question..

Thomas Chong is back..

Hi, I'm on the line..

Thank you. Just one second they are just going to check for a quick second. Everybody just please hold..

[Foreign Language] Thank you. I'll help translate the first part of Mr. Dong answer. So as we are speaking at a high level for 2019, despite the timing or the global macro headwinds we are too pretty confident on the growth booking and game live streaming.

So we do have the confidence for all our future growth in terms of any use and other business metrics for 2019. And now for the second part of our e-sport strategy, so we see game live streaming platform is a important pattern for e-sports value chain.

Game live streaming platform is particularly not just games at e-sport content but also help the e-sports players view to grow their fan community and provide monetization opportunity. For e-sports content we are covered major e-sports tournaments across China and the globe and also organize tournament ourselves covering those mainstream games.

So high quality e-sports content is very valuable to Huya's that help attract users and increase use of lifetime value we aim to be the more influential in both China's and global e-sports industry and support the growth of the e-sports ecosystem.

We're opened to more corporation and investment opportunities in the e-sports views and we will invest in companies and content creators around the e-sports value chain both domestically and internationally to increase or inforce in the e-sports.

And lastly e-sports professional players can stream all the platform and we share the virtual gift in revenue with them. In the future we are actually planning to generate more revenue stream from advertising, sponsorship, media rights and so on..

Hi this is Henry, I'll also try to provide some more details to comment Mr. Dong answers. First in 2019 with our e-sports best strategy, we will try to cover all the major both class e-sports tournaments and events.

And we were trying to force - reforces for the self organized e-sports tournaments and events and trying to cover more long term gaming titles in China market. Thank you. Let’s continue for the second question..

Your next question comes from Hillman Chan with Citigroup. Please go ahead..

[Foreign Language] Thank you management for taking my question. Regarding the third quarter possibility appears to improve marginally better management give more color on this on context revenue sharing with streamer talent agencies sign-on cost and IP, so as the sub-east Asia expansion through land more TV.

And my other question is about the MAU and paying user growth trend in the third quarter. Just to clarify that’s driven more value gaming while in the non-gaming part.

And regarding the additional matters in October and November, could you share on the trend following the LoL Esports S8 World Championship and whether we have other users coming from [indiscernible] following the temporary suspension recently. Thank you very much..

Thank you, Hillman. Management will prepare answer very shortly. Hi Hillman I was trying to answer your question about the margins and CEO will answer the question about your second question. So at first actually we are beating our guidance in terms of total revenues in this quarter. I think that’s one of the reason why the margin looks better.

The another factor is that those marking expenses doesn’t increase at a large because we have the successful e-sport strategy in kind of holidays and in the third quarter.

We broadcasted all the major world class e-sports tournaments and all these tournaments had achieved very impressive result in terms of user by improving the user engagement and extended the user time spend our platform. So that’s how I mean that have allowed organic user growth in this quarter.

And we also have leverage the gross margin in terms of the bandwidth cost savings. We deploy the new technology B2B technology in the content distribution and those two factors is about R&D and G&A because our revenue growth is faster than our salary growth than our headcount growth. So we have leverage on the expenses.

So I think that’s the reason behind that why our margin may be better than market expectation..

[Foreign Language].

Thank you I’ll have translate on this from Dong. So based on what could extend as we know, the reason that all our competitors got removed from the Apple store and several other Android app store is an online place to is the industry wide policy reasons.

So as consent - as a publicly listed companies we’re pretty confident on our public structure, at the same time we actually hold all companies in the live streaming industry will strengthen the corporate governance and work together for the healthy development and growth of the live streaming industry in general.

And back to your kind of question on MAU growth, specific plays in October and November. So from our perspective a lot of the user growth is actually based on a lot of the operations we have now and the capabilities we demonstrate in operating those tournament - broadcasting those tournaments.

For example the Season 8 that you mentioned and we believe this will actually demonstrate our confidence and our capability in game live streaming particular and this will be the key reason that kind of generated the user growth to Huya for October and November..

Thank you very much Rongjie Dong and Henry thank you for the color. Congrats again on the quarter..

Okay, thank you Hillman. We are ready for next one..

Your next question comes from [indiscernible] with Merrill Lynch. Please go ahead..

[Foreign Language] My first question is regarding your Annual Gala any updates your chance for this year's Annual Gala. And my second question is regarding your content base what’s the percentage of content from e-sports beside e-sports can you share with us the other top content category? Thank you..

[Foreign Language].

I will have translate Mr. Dong answer. Same as last year we will have the Annual Gala in January and the main purpose of this event is actually to increase our Huya's brand awareness and any falls in the game and e-sport industry and also to deepen our partnership with the talent agencies and broadcasters.

So all in internal [indiscernible] will be lower than other well known Gala events in China. The management team does not view this event as a key driver for bringing users or letting in growth..

I will try to help to answer your second question about the top content in the categories. So actually the streaming hours of the gaming content on our platform counted for around 80% of the total streaming hours generated every day.

And the top three of the gaming contents including league of legend, PUBG, POBG, and Honor of Kings accounted for 50% of the total gaming rigid to streaming hours we as platform.

To give some more details about our content strategy in gaming titles, so now we are very focusing on broadcasting those like long tailed gaming titles to keep very larger portfolio of the gaming titles on our platform more than 2,000 gaming titles.

So, for the long tail gaming title including like the PUBG mobile version, Cross Fire, Minecraft's HusTones as you can see from our mobile app. Thank you. That's our answer for [indiscernible] questions. Hi operator, we are ready for next one..

Your next question comes from Eileen Deng with Deutsche Bank. Please go ahead..

Thank you management for taking my question. I have two questions, the first one is I remember management used to compare our business to the U.S. Company to teach. Could management give us an update on how our business has evolved right now if we compare to them, is there anything new that we could expect beyond.

And the second question is could management comment on how the overall competitive dynamics right now and how it will reflect into the modern trajectory to next year. Thank you..

[Foreign Language].

I'll help translate of this. So as we compare with trade, I think there are several prospective we can do.

Firstly on the business revenue model, and the majority of which is revenue actually comes from advertising and subscriptions, which at premature material stage for portage, we believe those do at early stage for China and we see great potential in those monetization models.

We will increase our investments to develop the advertising and subscription models and create more monetization opportunities going forward, and we also noticed on previous platform they also had the virtual gifting on features added on.

So users can actually get virtual gifts and donations to the broadcasters, this can encourage users through have a better interaction with the broadcaster's community. To some management reasons may emphasize the value that viewer's donation to the streamers in public.

So this means all of true gifting model is being well recognized by our international peers. Then on the content perspective we opted some western broadcasters also on fans in Tier 1 cities of China, we will introduce more international e-sports teams and professional players to our platform and bring more compelling content to our domestic users.

This concludes the end for the first question and for your second question..

Hi, this is Henry. I'll help to answer your second question about the competition environments. We believe that live streaming industry will continue the consolidation trend especially after IPO.

It will be difficult for the new live streaming platform to go up and effectively take hold technical and operational issues, which may hinder them from establishing the efficient echo system with enriched live streaming contents, and apparently we are the leader in our market.

We have seen though - we are the leading position of being further enhanced by our growing user time spend, user engagements since our IPO. So that's - we are also trying to like do more about like the self organized e-sports tournaments to increase our influence on the upstream in the e-sport industry in the future.

We are just trying to provide a more like value added services to content creators and e-sports players to provide our users more access, more easy in convenience to touch base with proven contents. This can help to leverage to have the economical skill and to help us to do some leverage on the content costs.

This also can help to stabilize our margin. That's our answers to your question. Operator, we are ready for next one..

Your next question comes from Jerry Liu with UBS. Please go ahead..

Just a couple of questions from me.

I want to ask about a game approvals, if the regulators start approving new game monetization late this year early next year, what kind of incremental growth can we see in our businesses, I know we do not directly impacted but could we see potential some improvement in the live streaming business with higher tipping eventually more e-sports tournament we can host.

And also in the advertising business, could we just discuss a bit more about what help drive the strong growth this quarter and if game approvals are we started then, would we expect further growth as a publishers or more likely to advertize new games that they can monetize. I'll translate myself. [Foreign Language].

[Foreign Language].

Thank you, I'll translate Mr. Dong's answer. So at a high level in terms of the approval game suspension or the future developments we actually do not have a lot of interest from that.

So but then from a internal perspective if we talk about the user growth, overall our user growth is not directly impacted by the gaming license approval process because from a revenue perspective, we are not directly involved in game developing and publishing and does not generate revenue from out of either.

So we generally - most revenue is through which we get in live streaming services and advertising services. But obviously we have been exploring new monetization streams by working with the game developers, publishers and the management team is confident about the company's revenue prospect going forward.

Huya's current revenue model does not a game license. So as we disclosed in our prospectus, Huya has obtained all the relevant license and permits required to operate this live streaming business. So far there is no material fundamental changes to that so from compliance perspective we can improve compliance..

Hi, Jerry, I'll have to answer second question about the advertising business. So actually in the third quarter of 2018, this quarter our advertising revenue actually growth fostered by excluding those live streamline business and line items.

So actually this reflects companies like they're trying to continuous efforts to expand our advertising services through merchants and through corporate clients, to help them to do marketing our platform. Actually we benefited from the improving awareness of our brand name especially after IPO.

Not only like our investor content, as always like many other gaming companies they're trying to purchase our ad load Huya platform. So we are expecting to enlarge our advertiser space and to grow faster our advertising business in the future.

Another is about e-sports, actually we believe that the Chinese Government to the regulators especially to sport bureaus has a fully support for the e-sports in China. So we keep that very confidence and optimized on this e-sports potential in China market.

And we believe that the regulators also hope the gaming industry and the e-sports industry have a healthy growth by doing more important regulations. Thank you. I think that's our answers to your questions, Jerry..

The next question comes from Piyush Mubayi with Goldman Sachs. Please go ahead..

I have two sets of questions. One, from a near-term perspective when we look at ARPU, it appears that ARPU in the third quarter tends to flatten versus the second quarter on a sequential basis.

I wondered if you could talk through that trend that we've observed two years in a row what it implies for 2019? Second, with the MAU improvement in the quarter in the third quarter that was I guess better than some of us may have expected, could you address the question of how you're thinking of your time for MAU? That would be great. Thank you..

Thank you. I'll have to translate your answer to Chinese for the Management team, please wait momentarily..

Hi, Piyush, this is Henry. I will help to answer your first question. So actually about ARPU, our priority now is to grow our user base to gain more market share.

Trying to provide a more differentiated live streaming content and service to create more value to our users, and we are trying to enhance our user experience to improve the paying ratio instead of perpetually focusing on increasing on ARPU at this point. Actually compared to the other platform, our ARPU still have much room to improve.

And as mentioned earlier, in this quarter more than like 70% of our paying users that paid for the gaming origin content, we believe that we have large potential for them, the ARPU of those like users are paying for gaming content is still relatively low in comparison to the rest of the contents.

And on a quarterly basis we believe that if paying user pace do go faster there maybe some fluctuation on ARPUs growth due to a mix of lower spending by new users and higher by the repeated paying users. In the long run we believe that ARPU on the platform will continue to increase. I will try to answer second question about total adjustment market.

So we believe that in the mid-term we're trying to convert more gamers into the game live streaming users with our platform. But in the long run we're trying to attract more casual gamers or even the non-gamers by providing offering more like e-sports related content on our platform.

Now maybe you can refer to a lot of like the third party public authorities about the gaming market. Total gamers market in China maybe around the 400 million or 500 million total gamers in Chinese market.

So we still think we have a large potential by converting more gamers and from hardcore gamers and as well as the casual gamers by the top tier very popular what we call, e-sports tournament on our platform by attracting them to converting them into our users..

[Foreign Language].

I'll just translate the last bit. So given the recent tournament, for example, Season 8, we see a lot of the viewers on platform kind of being transformed from hardcore users - hardcore gamers to general casual gamers or game enthusiasts.

So because of the trend we are very confident about the future user growth and our total addressable market in the future. Thank you..

Your next question comes from Alex Liu with China Renaissance. Please go ahead..

[Foreign Language] I'll translate myself. So first, how does the recent very popular Season 8 benefiting over 4Q guidance quantitatively? And second, how should we think about the margin outlook for China here in 2020? Thank you..

Management team will discuss momentarily..

Actually we cannot disclose the Q4 related numbers right now. So we believe that League of Legend S8 really help us a lot in the user growth and user stickiness on our platform. And unfortunately actually we cannot provide the margin guidance for the next two years for now..

As there are no further questions, now I would like to turn the call back over to the Company for closing remarks..

Thank you once again for joining us today. If you have further questions, please feel free to contact Huya's Investor Relations, through the contact information provided on our website of the TPG Investor Relations. Thank you very much. Bye, bye..