Good morning and good evening, ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited first quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. Please note this event is being recorded. I will now turn the call over to the first speaker today, Miss Mao Mao, Investor Relations of DouYu. Please go ahead, ma'am.

Thank you, operator. Hello everyone. Welcome to our first quarter 2020 earnings conference call. Joining us today are Mr. Shaojie Chen, Chairman and CEO, Mr. Mingming Su, Chief Strategy Officer and Mr. Hao Cao, Vice President of Finance. You can refer to our first quarter of 2020 financial results on our IR website at ir.douyu.com. You can also check a replay of this call when it becomes available in a few hours on our IR website. Before we start, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor provision for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve unknown and known risks, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be materially different from the results, performance, or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statement, risk factors, and details of the company's filings with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call. Now, I will speak on behalf of our Chairman and CEO, Mr. Shaojie Chen.

We concluded the first quarter of 2020 with solid financial and operational results. During the period, total net revenue increased by 53% year-over-year to RMB2.28 billion. Gross profit increased by 139.2% year-over-year to RMB485.9 million while gross margin expanded to 21.3%. Meanwhile, net income was RMB254.5 million representing a net margin of 11.2%. Adjusted net income grew to RMB296.9 million representing adjusted net margin of 13%. Additionally, quarterly paying users increased by 26.2% year-over-year to 7.6 million. In the first quarter, our mobile user base maintained a record growth trajectory with our average mobile MAUs increasing by 15.3% year-over-year to 56.6 million. Although the first quarter is traditionally a slow season for us and the Coronavirus outbreak caused a certain amount of uncertainty in the marketplace, we were able to grow our mobile MAUs through effective measures. During the period, for example, we broadcasted more new top tier games, developed more premium eSports content, and enhanced our collaboration with game developers and attract more high-quality streamers with growth potential. We also implemented more productive streamer guidelines which helped to augment total live streaming hours. This positive strength was offset by the temporary closure of Internet cafes during the pandemic which caused our PC MAUs to decrease in the first quarter. While the combination of these factors led to a slight decline in our total MAU, which were 158.1 million in the first quarter, compared to 159.2 million in the same period of 2019. Going to the second quarter, we have been able to maintain our growth momentum in mobile MAUs as we continue to refine our platform operations. Going forward, the mobile market will continue to be our strategic focus for user growth as we believe that it still has tremendous growth potential. We plan to keep enhancing our eSport live streaming capability, upgrading our community based content operation and expanding our content offering beyond live streaming so that we can further deepen our penetration of the mobile market and sustain the rapid growth of mobile users. Underneath our user base expansion lies the solid foundation of our comprehensive content ecosystem. During the quarter, we continued to invest in high-quality eSport-centric content. At the same time, we also refined our operations to develop new content and maximize content value. As a result, we were able to maintain high levels of user engagement and user stickiness on our platform with the game live-streaming segment accounting for about 8% of our total viewership during the quarter. Beyond internal content operations, our further exploration of value creation opportunities up and down the eSports value chain also yielded promising results. During the quarter, top eSport teams continued to play a very important role in our content ecosystem. For example, League of Legends JDG, an eSport team that we sponsored, won the LPL Spring 2020. We also built up Honor of Kings DYG, who ranked second in the Western division of the KPL Spring 2020. These top eSport teams delivered outstanding performance and helped to contribute additional premium eSport content to our platform in the quarter. We also continued to deepen our collaboration with game developers and publishers, especially in terms of online eSport tournaments and our related partnerships. During the quarter, we broadcasted over 50 large-scale eSports tournaments, including LPL Spring 2020 and KPL Spring 2020. At the same time, we also produced over 40 eSport tournaments through either in-house production or joint development with external partners. Notably, we collaborated closely with the Honor of Kings project team and through joint participation from both streamers and users, we were able to significantly boost our user participation rate, streamer engagement levels as well as streamer user interaction. This effort has helped us create additional value along the eSports value chain, which energizes our eSport community and will also contribute to our exploration of potential eSport business models in the future. To further solidify our content ecosystem, we continued to utilize our dual streamer management model of combined direct management of top streamers and joint management of mid-tier, long-tail streamers with talent agencies, especially on the live streaming of new game titles front. We are able to quickly assimilate high-quality content systems by leveraging our own business know-how and employing a combination of channeling high-quality streamers to the new game segment and recruiting new streamers through partnerships with talent agencies. As a result, we were able to augment our industry leadership in the live streaming of new games. Building on the strength of our extensive user base and leading content ecosystem, we mobilized three key drivers to accelerate our revenue growth in the quarter. First, we continued to refine and upgrade our interactive features which stimulate user stream engagement, cultivate user playing habits and increase total tipping revenue. Second, we deepened our collaboration with talent agencies to increase our monetization efficiency and solidify our supply of high-quality streamers who have favorable monetization characteristics and help to attract a broader range of users. Third, we further developed our transaction-driven event system through which we are building a methodical, consistent user monetization process. As a result, our quarterly paying users increased by 26.2% year-over-year to 7.6 million with a paying ratio of 4.8% compared to 3.8% in the prior year period. Also, ARPU increased by 23.7% year-over-year to RMB280 in the first quarter. In addition, as we refine our operating tactics tailored for each content segment, both our monetization rate and the mid-tier streamers' income improved notably. Going forward, we plan to explore new user features and functionalities and devise innovative marketing initiatives to bolster the overall operating efficiency of our platform. We also deepened our collaboration with both streamers and talent agencies, enhanced our operations and improved our monetization rates across all segments. During the quarter, to augment our content monitoring efficiency, we committed additional reserves for the research and development of our AI processing capabilities. By leveraging state-of-the-art technology, we can automatically supply tickets of the copyrighted music, movies, events and other content in advance, thus significantly improving both the speed and the currency of our content monitoring process. For cloud gaming, we continue to explore new methods of improving the user's gaming experience. For example, we reached an initial cooperative agreement with a number of game developers in the quarter to add the beta version of new games directly onto our platform, thus enabling users to try out new games without the need to download any additional application. As we provide users with a convenient gaming experience, we are able to increase our user stickiness and boost our platform traffic. Going forward, we will remain focused on accelerating the development of our cloud games, improve our advertising efficacy, and explore new game distribution models. Adding to our domestic success in China, we maintained the record growth trajectory of our Japanese live streaming platform, Mildom, to further solidify our presence in Japan. Considering Japan's broad base of gamers and excellent user payment habits, we are quite optimistic about our prospect of generating a sizable return on investment in the Japanese market. In summary, we are pleased with our financial and operational achievements in the first quarter. Looking ahead, we will continue to build an eSport-centric content community for the younger generation, deploy resources upstream and downstream throughout the eSports value chain, enhance our operational refinement and R&D investment and optimize our user experience continuously. We also seek to improve our platform's monetization and operational efficiency through effective product development, streamer management, and content operations. As we continue, our preference for the eSport-centric content ecosystem, we are confident that we should be able to sustain our platform growth, improve our financial performance and deliver lasting value to our shareholders over the long term. With that, I will now turn the call to our Vice President of Finance, Mr. Hao Cao, to go through the detail of our financial performance in the first quarter.

Thank you, Mao Mao. Hello everyone. I am very excited to announce that our total revenues in the first quarter of 2020 increased by 53% to RMB2.28 billion from RMB1.49 billion in the same period of 2019, exceeding the high end of our previous guidance range. In addition, during the first quarter of 2020, gross margin expanded to 21.3% from 13.6% in the same period of 2019. Net income increased to RMB254.5 million from RMB18.2 million in the same period of 2019, and adjusted net income increased to RMB296.9 million from RMB35.3 million in the same period of 2019. Now please allow me to provide you with some more details regarding our key financial metrics. Total net revenues in the first quarter of 2020 increased by 53% year-over-year to RMB2.28 billion, with RMB2.11 billion in live streaming revenues as well as RMB165 million in advertising and other revenues. Live streaming revenues in the first quarter of 2020 increased by 56% to RMB2.11 billion from RMB1.35 billion in the same period of 2019. This increase was attributable to our ongoing optimization of interactive platform features which helped to further increase user streamer interactions as well as stimulate both the user's willingness to pay and payment frequency. As a result, our paying users in the first quarter of 2020 increased by 26.2% to 7.6 million from 6 million in the same period of last year. In addition, our continuous refinement of talent agency partnerships and event mechanisms have further boosted the revenue contribution from our platform's daily operations. Furthermore, the implementation of our operational refinement strategy for different segments also helped to improve our monetization efficiency across both gaming and non-gaming segments and further increased mid-tier streamer's income. Advertising and other revenues in the first quarter of 2020 increased by 22.2% to RMB165 million from RMB135 million in the same period of 2019. This increase was mainly driven by our broadening brand awareness and the corresponding increase in demand from game advertisers. Cost of revenues in the first quarter of 2020 increased by 39.4% to RMB1.79 billion from RMB1.29 billion in the same period of 2019. More specifically, revenue sharing fees and content costs in the first quarter of 2020 increased by 47.5% to RMB1.57 billion from RMB1.07 billion in the same period of 2019. This increase was primarily explained by two factors. First, increased revenue sharing fees which basically grew in line with the increases in total net revenues. Second, increased investments in both eSports-related content rights and in-house content production. In addition, due to a lower unit purchase price and improved bandwidth utilization efficiency resulting from the further implementation of our self-developed P2P and CDN technologies, our bandwidth cost during the first quarter of 2020 decreased slightly by 5.8% to RMB152.9 million from RMB162.3 million in the same period of 2019. Gross profit in the first quarter of 2020 increased by 139.2% to RMB485.9 million from RMB203.1 million in the same period of 2019. Gross margin in the first quarter of 2020 expanded to 21.3% from 13.6% in the same period of 2019. Such expansion was mainly driven by our continuous improvements to monetization, streamer costs and bandwidth utilization efficiency as well as our improved operating leverage as a result of the company's increasing economies of scale. Now turning to our operating expenses. Sales and marketing expenses in the first quarter of 2020 decreased by 13.1% to RMB107.1 million from RMB123.6 million in the same period of 2019, mainly due to the exemption of government-mandated social security contributions and reduced office, travel, and welfare expenses during the work from home period after the COVID-19 outbreak. Research and development expenses in the first quarter of 2020 increased by 17% to RMB92.9 million from RMB79.4 million in the same period of 2019. This increase was primarily driven by increased investments in technological innovations as well as higher share-based compensation to relevant employees, partially offset by exemption of government-mandated social security contributions and reduced office, travel, and welfare expenses during the work from home period after COVID-19 outbreak. General and administrative expenses in the first quarter of 2020 increased by 33.3% to RMB84.6 million, compared with RMB63.5 million in the same period of 2019, mainly as a result of higher share-based compensation expenses, partially offset by exemption of government-mandated social security contributions and reduced office, travel, and welfare expenses during the work from home period after COVID-19 outbreak. Share-based compensation expenses allocated to operating expenses in the first quarter of 2020 were RMB41.9 million as compared to RMB17.8 million in the first quarter of 2019 and RMB17.4 million in the fourth quarter of 2019. Other operating income, net in the first quarter of 2020 increased by 11.4% to RMB16.6 million from RMB14.9 million in the same period of 2019. Adjusted operating income in the first quarter of 2020, which excludes share-based compensation expenses, was RMB259.5 million compared to an adjusted operating loss of RMB30.6 million in the same period of 2019. Net income in the first quarter of 2020 improved to RMB254.5 million from RMB18.2 million in the same period of 2019. Adjusted net income in the first quarter of 2020, which excludes share-based compensation expenses, share of loss in equity method investments, and impairment loss of investments improved to RMB296.9 million from RMB35.3 million in the same period of 2019, implying an adjusted net margin of 13.0% for the first quarter of 2020. For the first quarter of 2020, basic and diluted net income per ADS were RMB0.82 and RMB0.79 respectively while adjusted basic and diluted net income per ADS were RMB0.95 and RMB0.95 respectively. In the coming months, we remain focused on improving our monetization capabilities and efficiency as well as further utilizing our operating leverage to pursue the sustainable development of our platform. We expect our total net revenues for the second quarter of 2020 to be in the range of RMB2.36 billion to RMB2.41 billion. This forecast reflects our current and preliminary views on the market and operational conditions which are subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

[Operator Instructions]. And the first question today comes from Lei Zhang of Bank of America Securities. Please go ahead.

[FOREIGN LANGUAGE] First, congratulations on the strong results. And my first question is about user trends. Can you give us more color on the most user-related trend, post-people resuming work? And secondly, I am wondering about the COVID-19 impact on our game and non-game content. Thank you.

[FOREIGN LANGUAGE] Hi Lei. Thanks for your question. I will now help translate the answers. Actually, in terms of your first question, according to data from our platform, our total MAUs and the average daily time spent by each active user have remained stable without any significant fluctuations since the gradual work resumption in China in March. In particular, our mobile MAUs and user engagement have been maintained at a high level. This is because users have formed good watching and using habits on our platform over the years of our platform's operation and development. And in terms of your second question, although the first quarter is kind of a traditionally slow season, we implemented productive guidelines to encourage more quality streamers which helped to increase the total live streaming hours. As we increased the amount of quality content on our platform, more users were attracted to our platform, especially from the mobile end. The user engagement level further increased as well. For our gaming segment, the epidemic resulted in an overall improvement of user traffic in the game industry, driving growth for all popular game segments and also the new blockbuster game sectors on our platform during the period. Actually, during the first quarter, our gaming live streaming segment accounted for about 80% of the total viewership, and overall revenue generated from game live streaming also maintained its revenue growth trajectory. In terms of the non-gaming segment, actual users and total viewership have remained relatively stable during this epidemic to ensure the abundant production of high-quality content across all segments and satisfy users being preferred through proactive operational refinement. This also helped us in creating user engagement stickiness to our platform. Thank you. Operator, please address the next question.

Your next question comes from Brian Gong of Citigroup. Please go ahead.

[FOREIGN LANGUAGE] Thank you, management, for taking my question. Congratulations on the solid results. Can management share the objective view on the competitive landscape in the game live streaming industry? Any changes on the competition from Bilibili and Kuaishou? Thanks.

[FOREIGN LANGUAGE] Thanks for your question. Since the first quarter, the industry's competitive landscape has not changed significantly. As a leading game live streaming platform, DouYu continues to build our game-centric content ecosystem, energize our eSport community, and explore related areas such as game shops on Baidu. Since Kuaishou and Bilibili entered the game live streaming industry, both user traffic and user traction have been boosted, which has also helped to raise the entire game live streaming market and benefited the industry's development. From a competition perspective, since the prohibition of streamers switching between platforms, the industry has remained in a healthy competitive landscape. On top of this, our premium top and mid-tier streamer resources helped us create a strong content barrier. Therefore, we have more advantages when competing with both existing players and new entrants in the industry. We will also take advantage of our professional products and premium content to increase our mobile user traffic and enhance our competitive edge. Yes. Thank you. Operator, please address the next question.

Your next question comes from Thomas Chong of Jefferies. Please go ahead.

[FOREIGN LANGUAGE] Thanks, management, for taking my question. My question is about the revenue growth trend as well as the key factors driving revenue growth. Thank you.

[FOREIGN LANGUAGE] Thanks for your question. The quarter-over-quarter increase in our live streaming revenue resulted from our ongoing improvement to interactive features which were made to increase user and streamer interaction as well as the user's willingness to pay and payment frequency. In the first quarter of 2020, our quarterly paying users increased by 4.1% to 7.6 million from 7.3 million in the first quarter of 2019. ARPU also achieved around a 7% quarter-over-quarter increase. Our refinement of operations across segments helped to improve each segment's monetization efficiency. We also enhanced our development of live streaming content diversification, which improved the monetization efficiency and revenue contribution of our gaming segment. We increased our interactive functions, such as the streamer PK system, which aimed to improve the monetization efficiency of our mid-tier streamers. Our development of monetization activities helped to increase revenue from daily sales-driven events on our platform as well. Okay. Thank you. Operator, please address the next question.

Your next question comes from Alex Poon of Morgan Stanley. Please go ahead.

[FOREIGN LANGUAGE] I will translate my questions. My question is related to the game streamers. First of all, can you share with us the risk of concentration of your top streamers? And second, can you share with us your development strategy for game streamers in the future? And third, how can you raise the monetization efficiency of the middle-layer streamers? Thank you very much.

[FOREIGN LANGUAGE] Okay. Thanks for your question. As we mentioned before, we have signed three to five-year contracts with the top 100 streamers already. Thus, there will be a stable situation among the top streamers on our platform. Moreover, we still keep the strategy where top streamers contribute significantly to the premium content and the overall viewership, while mid-tier and long-tail streamers help us diversify our content offering and improve monetization efficiency. By cultivating new streamers and leveraging talent agencies, we will continuously provide valuable streamer resources to our platform. We have also taken several measures to improve our monetization efficiency of mid-tier streamers. We kept updating our latest functions to enhance our monetization capabilities. According to our efforts, the number and quality of our mid-tier streamers kept increasing during the first quarter. For example, the total number of streamers with revenue above RMB10,000 per quarter has reached around 40% year-over-year growth. Okay. Thank you. Operator, please address the next question.

Your next question comes from Daniel Chen of JPMorgan. Please go ahead.

[FOREIGN LANGUAGE] I will quickly translate myself. My question is on the PC MAU trend. So PC MAU seems to be declining on a year-over-year and sequential basis in the first quarter. I am not sure if it's related to the COVID-19 or if there are some other reasons for the decline? And how should we look at PC and mobile user growth in the next few quarters when work resumes? Thank you.

[FOREIGN LANGUAGE] Thank you for your questions. Our PC MAUs declined in the first quarter, which was mainly due to the closure of Internet cafes during the epidemic, actually causing a reduction in Internet cafe PC users. Also, some Internet cafe PC users we have logged year changed their viewing preference from personal computers to mobile phones during this period. This trend for our PC MAUs has been within our expectations. On the other hand, we actually maintained rapid growth in the mobile MAUs during the first quarter. Such growth was mainly driven by the increase in streaming hours, the launch of new quality games, and also our continued deepened cooperation with game developers. Actually, looking from the second quarter, with continued addressing of our platform operation issues, we have been able to maintain a stable mobile MAU growth. Looking ahead, we think that we will continue to focus on the record growth of our mobile users. We also believe that, in general, mobile users have higher levels of engagement and a better pay ratio. We think the mobile segment of the market still has large growth potential, allowing us to improve our penetration rates. Okay. So, thank you. Operator, let's address the next question.

Certainly. [Operator Instructions]. The next question is from Alex Liu of China Renaissance. Please go ahead.

[FOREIGN LANGUAGE] Thanks for taking my question. My question is on the gross margins. We saw the gross margin trend up pretty well in the first quarter of 2020. How should we think about the trend of revenue sharing, content cost and bandwidth cost down the road? Thank you.

[FOREIGN LANGUAGE] Yes. Thanks for your question. We will maintain our revenue sharing policy at a half-half split between the platform and also streamer and talent agency. We will also offer certain incentives to streamers and talent agencies during the promotional periods. Therefore, the overall revenue sharing ratio may fluctuate slightly quarter-over-quarter. As a game-centric live streaming platform, we will continue to invest more in content related to eSport games and also potential blockbuster games, especially in top eSport tournaments and self-produced premium content. We will also invest more in overseas streamers and potential streamers with new game title launches. Overall, content cost will show an upward trend in absolute value but will keep a gradually decreasing share as a percentage of total revenue. Additionally, looking at bandwidth costs, this will mainly be due to user growth on our platform, where we will see bandwidth costs increase in absolute value but maintain a rather decreasing trend as a percentage of total revenue. Okay. Thanks for your question.

There are no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Okay. Thank you for joining our call today. We are looking forward to speaking with everyone next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.