Qutoutiao Inc. (QTT) on Q3 2021 Results - Earnings Call Transcript
Operator: Hello, ladies and gentlemen. Thank you for standing by for the Third Quarter 2021 Earnings Conference Call for Qutoutiao Inc. At this time all participants are in a listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Angela Wang. Please go ahead, Angela.
Angela Wang: Thank you very much. Welcome everyone to the third quarter of 2021 earnings conference call of Qutoutiao, Inc. The company's financial and operational results were released via Newswire Services earlier today, and have been made available online. You can also view the earnings press release by visiting the IR section of our website at ir.qutoutiao.net. Participants on today's call will include our CEO, Mr. Eric Tan; and our CFO, Mr. Xiaolu Zhu. Before we continue, please note that today's discussion 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 involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other 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 under applicable law. Please note that Qutoutiao's earnings press release and this conference call includes discussions of unaudited GAAP financial measures, as well as unaudited non-GAAP financial measures. Qutoutiao's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will start by reading out Eric’s commentary on the business.
Eric Tan: Thank you. And thanks, everyone, for joining today's conference call. The second half of the year has been difficult for us as we try to align our business lines into a more efficient structure, while many of our advertising customers facing the upgrading in the financial pressures of their own. We continue to observe the negative effect on advertisers confidence in spending due to the economic headwinds and the regulatory actions in the advertising market and the overall Internet sector. It is the uncertainty or the lack of visibility going forward that has dictated much of advertising customer budgeting decisions. We expect to the fourth quarter of the year and next -- early next year to continue to be under pressure as there has not yet been some of our straight upward momentum. For our business, as we have stated in previous quarters, where we can't control the wider industry arrivals, we focus on putting efforts into improving operating efficiency. We believe the foundation we laid in 2021 will be a solid step towards long term sustainable growth for Qutoutiao. One of the brightest spots of our results in Q3 was Midu Novels continued growth in user expansion and the content creation. Midu's DAU averaged around 11 million in the third quarter, up from 10 million we achieved in the second quarter, and above 65% increase compared to the same period a year ago. We continue to invest into building a rich content offering and innovative format of interaction to reach users, most notably through our proprietary content creation platform and the mini drama series. In the meantime, we will also take a more disciplined approach in future quarters and make sure Midu on a standalone basis can break even and turn cashflow positive on operational basis in the second half of 2022. Excluding Midu and the certain impairment charges, the rest of the company is still on track to the first breakeven year since our IPO. The result of 2021 so far is not as solid as we have hoped, at the beginning of the year. But as we implementing more cost control measures in the fourth quarter, we are going to have better operating efficiency and operating results for coming quarters, and a more solid foundation for the long term sustainable growth of Qutoutiao. Thank you very much. This concludes Eric's remarks and I will now turn the call over to our CFO, Xiaolu.
Xiaolu Zhu: Thank you, Eric, and Angela. And again, thank you, everyone for joining today's call. Our net revenues for the third quarter were RMB966 million with ARPU of RMB0.41 and the quarterly average DAU of RMB27 million and MAU of RMB119 million due to the tightening regulatory environment and the constrained budgets of our advertisers. Let's look at costs and expenses in more detail. Please note, I will be referring to non-GAAP measures which excludes stock-based compensation. Cost of revenues were RMB258 million, a decrease of 27% year-over-year due to more efficient budgeting with our IT expenditures despite increasing content procurement costs. As a result, we generated RMB697 million gross profit and 72% gross margin. Gross margin improved year over year and remained flattish sequentially. Our sales and marketing expenditures for the second quarter totaled RMB958 million increased by 41% year-over-year. And as a percentage of revenue it came to 99%, which represented 39 percentage point increase from a year ago, due to a combination of lower revenue base and increased investment in growth the user base of Midu Novels. Our R&D expenses were RMB118 million during the quarter, which was 12% of revenue decreased by 4% compared to a year ago. G&A expenses were RMB161 million during the quarter, which was over 17% of revenues. The decrease was mainly due to -- the increase was mainly due to an additional expected credit loss provision of RMB134 million. Exclude that, G&A expenses counted 3% of total revenues. The credit loss was mainly a result from the default of certain commercial bills issued by our advertising customers from 2020. As Eric mentioned earlier, some of our advertising customers especially those from the real estate sector, and some of the online sectors are facing great operating and financial pressures in 2021. And the default was a result of that. We have taken careful approach to these customers in 2021 and these credit losses will only impact our results in the second half of 2021. And we don't expect to this will carry over to 2022. We made an operating loss of around RMB516 million in the third quarter 2021. After breakeven in Q4 last year, our year-to-date loss has been the result of our ramped up investment in Midu Novels, excluding Midu and the impairment charges for credit losses. We still expect the rest of company to breakeven for the full year 2021 and beyond. As of September 30, 2021, the company had cash, cash equivalents, restricted cash and short term investments of RMB862 million, or US$134 million compared to RMB986 million as of December 31, 2020. For the next quarter, i.e. Q4 of 2021, we expect revenue to be ranging between RMB850 million and RMB900 million. Thank you very much. That concludes our prepared remarks today. We are now open for questions. Operator, please proceed.
Operator:
Angela Wang: Thanks again for your time. If you have any further questions, please do not hesitate to contact us. Have a good day.
Xiaolu Zhu: Thank you. Have a good day.
Operator: Thank you. This concludes our conference call. You may now disconnect your line. Thank you.
