Operator
Thank you for standing by, and welcome to the IQE Second Quarter 2026 Earnings Conference Call. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Chong Yu, IR Director of the company. Please go ahead.
Thank you, Operator. Hello, everyone, and thank you for joining ITE's second quarter 2026 earnings conference call. The company's results were released earlier today and are available on the company's investor relations website at ir.ite.com. On the call today are Mr. Yu Gong, our founder, director, and CEO, Mr. Ying Tian, our CFO, Mr. Xiaogui Wang, our CCO, Chief Content Officer, Mr. Yu Chao Duan, Senior Vice President of our Membership Business, Mr. Xiang Ha Yang, Senior Vice President of International and Online Game Business, and Mr. Gang Wu, Senior Vice President of Brand Advertising Business. Mr. Gong will give a brief overview of the company's business operations and highlights, followed by me, who will go through the financials. After the prepared remarks, the management team will participate in the Q&A session. Before we proceed, please note that the discussion today 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 are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but I'm not going to mention it too, those outlined in our public filings with the SEC. ITE does not undertake any obligation to update any forward list statement except as required under applicable law. I will now pass on to Mr. Gong. Please go ahead.
Hello, everyone. In the second quarter, we continued to reinforce our core business. High-quality, diversified content powered by powered industry-leading performance. According to enlightened data, we maintained the number one market share in each of the long-form drama, film, and children's content categories. And for short-form drama, we made a major breakthrough reaching number one market share for the first time in June. financial performance also improved quarter over quarter total revenue the total revenue total revenue school sequentially under all non-gap operating law narrow substantially approaching break-even we are fully launching our strategy, strategic transformation. First, we are shifting from a centralized media to a decentralized, creator and user-centric social media ecosystem. AI can dramatically lower the cost and the barriers of content creation, turning what was once a niche professional activity into a mass capability and triggering and parallel the search in content supply. Because traditional centralized models cannot accommodate this scale and diversity, we are upgrading our content acquisition and distribution mechanism to efficiently connect creators and audiences. Second, we are taking an all-in approach on AI to revolutionize both live action production and pure AITC. Our guiding principle is clear, maximizing cost efficiency without compromising quality. Together, these two pillars reinforce each other like a flywheel. AI drives rapid growth in content supply, which helps us move faster toward a decentralized model. As we decentralize, more creatures can participate, users get more engaged, and our platform becomes even stronger. In Q2, both strategies move from plans to measurable results over time. They will structurally improve our content cost, revenue quality, profitability, and let me walk you through the progress. For decentralization, we are improving our platform and accelerating the creator ecosystem. In April, we flashed our core creator hub, the IQID, IT Creator Center. Early sites are promising the number of creators and uploads are all trending higher. Content with short production cycle, low production scale, and a good fit for AI-driven creation has seen especially strong growth. For various types of content, the daily average number of uploaded works in the second quarter increased by 30% to 500% compared to the first quarter. In June, daily views for micro-dramas and micro-animations were up by double digits compared with much. Short-form dramas and animations are also gaining traction. Looking ahead, more long-form video categories will join the decentralized content ecosystem as we preserve IT's premium content advantage. We will broaden our content slate by adopting lighter, more flexible content acquisition models. On content production, AI is substantially optimizing production efficiency and cost structure. First, in live action, AI is streaming the entire workshop workflow. For example, we leverage AI in our variety show for Prime Season 2 to achieve a 10-fold leap in rough color efficiency compared to traditional methods. Second, for content tests well suited to AIGC, AIGC production can reduce production costs and timelines by 70% to 90% compared with traditional method, while pushing past the physical limits of live action shooting. Naturally, AI adoption is faster in Android CG-heavy formats. We have launched a multiple AI-generated Internet features field. A major milestone was the July primewars premiere of Mystic Tale Titan, the industry's first AIGC Internet feature field to launch with an Internet drama and a few distribution lessons. This marks the official shift of long-form AIGC from technical testing to center line. Large-scale production. In addition, here today, we have launched 16 AI-generated short-form drummers under a revenue sharing model. with Trill Handmaiden as the top-performing title in the second half of the year. We have launched a diversified slate of AIGC titles, including multiple IT-invested fields with an even broader pipeline across expanded categories next year. Currently, we have multiple AI-generated short-form drummers in development. NadoProm is a pseudo-grade production platform for creators. It runs on optimized third-party and in-house models, plus IT long-standing expertise in professional content. By replacing costly steps with lower compute and tool cost, it lowers barriers and speeds up professional content production. Our strategy is clear. Internally, NadoPro caps development and production costs. Externally, NadoPro explores new revenue streams and gradually converts all professional production capabilities into incremental revenue. Although Prof. Edge isn't generating AI output, it turns the key parts of non-form production, script writing, shop design, workflows, digital assets, editing, and dubbing into platform features. It delivers an End-to-end workflow connects talent with content assets and makes progress repeatable and re-useable. Networking is evolving from a tool into a comprehensive creator ecosystem. It links content demand with creators and enables them to realize commercial returns business model. This activities flywheel commercial returns encourage more content supply. Expanded supply fortifies the ecosystem. A stronger ecosystem scales both creators and works. Powering a creation platform for IT's decentralized content ecosystem. We believe this advances will improve content production efficiency, lower unit costs, and increase both users and revenue. As we roll them out across all operations and scale, we expected their contributions to profit and cash flow to steadily materialize. Now let's move on to the detailed performance in Q2. Let's start with content. Our premium content is well recognized by users and the industry. At the Magnolia Award with Jun, one of China's top TV owners, Bai Yulanjiao, IGE Titles and their creative teams won 14 of 23 awards, including 10 of 11 in the drama category. well ahead of peers. In Q2, our content performed well across formats. In long-form dramas, we continue to focus on female-centric stories. We saw here Jiayi ranking among this year's top two titles by AdRevenue. We also reinforce support our lead in suspense from general innovation. The suspense committee formed with luck, Giji Shang Fan Sui, surpassed the 10,000 ITE popularity score and draw strong membership sign-ups. Well, in SAPRO, from our ITE suspense center, earned strong reviews. Our original title, Archives the Nanyang Mystery, Nambudan exceeded 9,300 popularity index scores. Under the non-exclusive, the Epoch of MiYu, MiYuqi topped 8,500. In place supported short-form drummers, Typically, 15 to 25 minutes per episode with flexible episode counts. We delivered exciting early results. Per enlightened data, our market share doubled from 25% in March to 50% in June. Taking number one for the first time, the strong performance was supported by our original, the Fireman 10th Anniversary in Wur Baidu Shinin, which reached a peak daily market share of about 60%, short-form titles can offer structural advantages over long-form drummers, potentially reducing average per minute costs by over 50% and shortening production to approval timelines by 30% to 50%. In microdramas, we released a premium live action titles like All About Secretary Lee, Falling for You, and Phoenix Blade all resounded well with audiences. AIDC scaled quickly under the revenue-sharing model, accounting for over 50% of our micro-portfolio and unique visitors in June, while AI-native micro-animations expanded with strong sequential growth in view size and time size. In films, we maintain a diversified slate of different audiences, originals like the counterfeit Wei Chao Tong'an, the thin train, Jiuo, received positive feedback, well licensed, their article hits, practice the suite feature in show a place of the garden you're in zoom top here too well also well received on our platform in variety shows we launched the seven originals in q2 with our flagship from chess chess is delivering a sustained value of 5 hearts across a popularity index score of 9,000, reaching a new franchise For 10 years, Evergreen IP, the Rep of China 2026, also stood out, surpassing a popularity index score of 8,800. In animation, we further solidified our original offers, the long-draining against the gods. Nikian Xie Shen, with pre-mail in April, topped all animation popularity in DAX chat and brought notable platform users back to IT. together with both ruler we have we now have two long-running titles to keep users engaged year-round. Finally in children's content we reinforce our leadership with the return of our original IP SQL, Dell Squad, and the localized adaption of the BBC classic, Teletubbies. Next, let me show our pipeline for the second half of the year. Our summer long-form drama features a diversified lineup, which includes multiple female-oriented titles like Road to Success, Cairo Penxing, Key to the Phoenix Heart, Chueguo, Overdue Zhe Miao Guohua, Genius Girlfriend's Tianzai Niu, Spring of the Blade, You Chun, Abyss, Shen Yuan Wu Jian, and In My Prime, Sheng Feng Qi Shi, Complimented by the military scene, Windblown Warriors, Bing Cong Feng Zhong Lai, and the major realistic drama forging justice, Song Qi. For the remainder of the year, we will premiere the Great Long March, Changzheng, Take a nap, Hayao Dao Shunjiji, Small Town Remedy, Xiangcheng Lianfang, and the River of No Return, Yang Ding Shunji. As for short dramas, our upcoming releases include The Death of Winter, The Five Groups of Fatal Case, The Six Groups of Fatal Case, and The Great Nobody II. In films, our pipeline features original theoretical films, including Winter and Summer, Yilu Chau Ping An, No Go to the Child, Sivang Jin Qu Shilu, and Prohibition for Miss Ho. In the second half of the year, on the lessons at the front, our pipeline includes Venetian point and the furials this summer with I know who you are, but who dare you, and I'm not going to true and across the room for the later half of the year. For Internet feature films, which are limited to a maximum of three chapters, each at least 60 minutes long, our pipeline includes multiple AIPC titles based on the classic IP, the Fireman in Hongbaidu. The first two chapters, A Butterfly Dream and The Dream of Celestial Madden, are set to launch this summer. Additionally, audiences can also enjoy a strong lot of live action titles including Modern Game and Speed and Battle this summer. Shifting to variety shows by a deepening audience engagement with established eyepiece including the Wrap of China 2026, the King of Santa comedy season 3, and her Prime 2 this summer, followed by the Blooming Journey in the second half. For animations, this year could be AIQI's strongest animation summer today. The line of feature, A Good Day to SM, George Fisheng raised by amongst Pan Ali, Li Xiong Mao, Golden Horse, Cai Shen Dou Zanong, and to be a winner, Cheng Ye Xiao He alongside the AIGC titles The Legend of King Hongwu and The Legend of King Ji-Fa . For children's content, our summer slate features a new season of the popular present god and big big wolf, as well as original AIGC animations like Lallabit. Looking ahead to the second half of the year, we will roll out the original AIGC animation, Wusheng Armor and Common and Burst Proof Track, Tested Travel, Xiao Chu Miao Can Cheu Quixing. Now turning to membership business, revenue declined sequentially due to seasonality. We are strengthening the business with more refined operations. For example, targeted discounts for students and teachers drove a year-over-year increase of over 60% in quarter and subscribers within this cohort. We also People continue to enhance membership value with all express packages. In Q2, we launched the express packages across 16 drummers, driving a nearly 80% annual increase in total participants. In addition, we are expanding joint membership with frequently purchased, a top-tier brand popular among young users to support membership growth and retention. Next, moving on to advertising business for brand ads, revenue from drama-targeted ads delivered double-digit year-over-year growth by sector beauty, personnel, cal, and health can record double-digit year-over-year growth. We also depend on use of AI in operations and now support customized AIGC rating. For performance ads, revenue returned to year-over-year growth. We continue to optimize advertiser mix. Revenue from small and mid-sized advertisers deliver strong year-over-year growth sector-wise, revenue from advertisers in AI applications, instant retail, and e-commerce recorded strong year-over-year growth. We further strengthened results with AI by upgrading of proprietary large models, improving targeting precision and driving revenue moving on to our business of performance in regions outside of mainland China in Q2 this business sustained rapid growth membership revenue grew 40% year over year Portuguese and Spanish speaking regions demonstrated robust growth. Notably, membership revenue from Brazil and Mexico searched by over 215% and 150% year-over-year, respectively. Arabic-speaking markets also showed strong potential with membership revenue increasing 85 percent. The global influence of seed drummers continues to expand. In Q2, membership revenue from seed drummers grow over 40 percent year-over-year. A stone-out hit was Space Truth You, Jiang, or Piancheng. It talked on international platform rankings across 14 regions in its first week and stayed in the top 10 of the three drummers' chat for 10 consecutive weeks. On the local production front, we are accelerating our pace. Our first original Indonesian drummer, the other sister, gained strong traction. For Google Trends, it became the number one local internet drummer in Indonesia in the first half of 2026. Micro drummers were another major in high life. Serving as the second largest membership revenue contributor, following long-form drummers In Q2, membership revenue from this category grew over 300% year-over-year. This momentum was partly fueled by stronger original production. Notably, originals rose to three of the top 10 contributors to membership revenue. AIGC was another key driver of our overseas micro-drama expansion. In Q2, we launched AI-generated titles in multiple languages, including English, Thai, and Green. Our original titles delivered exceptional efficiency, recoupling production costs within the same quarter, and demonstrating stable profit potential. We are scaling supply from both originals and external partnerships. In May, we released our first original DEI-generated microgrammer overseas, which quickly ranked in the top three for microgrammer revenue on our international platform. The title was produced by NandoPro, which helped us establish full-flung AIGC know-how, laying a strong foundation for scale production. in parallel. We are proactively forging external partnerships to connect overseas script production and to ecosystems including nanoprop, unlocking capacity and scaling AITC. Beyond content, we are driving growth with strong memberships. We have partnered with Vision Plus in Indonesia and will launch joint membership with Bill in more markets in the second half. We are excited about the future potential of our overseas business. With that, I will hand it over to Ying Tian, our new staff, to work you soon on the financials.
Okay, thank you, Mr. Kong, and hello, everyone. Let me work you through our key financial results for Q2. Total revenues were RIMB $6.3 billion, up 1% sequentially. Membership services revenue was RIMB $4.0 billion, down 4% sequentially, primarily due to the similarity. Online advertising revenue was RIMB $1.2 billion, flat sequentially. Content distribution revenue was RIMB $681.5 million, up 90% sequentially. driven by the increase in content distribution revenue related to the drama series. Other revenues were RMB $344.9 million, down 19% sequentially. Moving on to cost and operating expenses. Content cost was RMB $3.8 billion, up 2% sequentially. Total operating expenses were R&B $1.1 billion, down 6% sequentially, reflecting this pandemic in spending. Non-GAAP operating loss narrowed by 80% sequentially, from R&B $148.6 million in Q1 to R&B $30.3 million, bringing us close to the break-even. Turning to cash flow, net cash provided by operating activities increased to R&B $339.6 million from R&B $186.4 million in Q1. As of the end of Q2, we had cash, cash equivalents, restricted cash, and the short-term investments of R&B $4.1 billion. Separately, as of the quarter-end, we had a loan of $636.6 million US dollars receivable from PAG, included in prepayments and other assets on the consolidated balance sheets. We remain focused on creating long-term shareholders' value. In March 2026, we announced a share repurchase program of up to $100 million US dollars effective through September 2027. As of June 30, we had repurchased approximately $21.6 million ADSES for an aggregated cost of $24.1 million U.S. dollars. For further details, please refer to today's earnings on our investor relations website. With that, we are ready to take questions.
Operator
Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Please ask questions in Chinese first and then translate the questions into English. Please ask one question each time and go back into the queue for more questions. Your first question comes from Zikeng Zhang with CICC.
Thank you for taking my question. I would like to ask with AI knowledge and the market involved rapidly about measurements they actually spin this model developing in the future and what are the company's key strategic and operational priorities going forward. Thank you.
Thank you. The CEO takes this question. So he says, But we see ITE as the beneficiary of AI now and also in the long term. So to capture this opportunity, we are making some strategic transformation for our business. mainly focus on two main pillars, decentralization, which meaning transforming from the media-centric platform to a decentralized content ecosystem, and also all in AI. So these two pillars, we believe, will mutually reinforce each other and jointly driving a flywheel effect across the number of creators, the volume of content, the user base, and potentially revenue performance. Okay. Premium content still remains at the core of our business. We believe AI will significantly lower production cost for premium content, shorten production cycles, and potentially enable production and visual effects that were previously difficult to achieve through life action. 去中心化方面我们努力推这个就是i7号iQID 然后现在的这个创作者数量上传的作品数量都显著提升 目前AI的应用在各个核心内容品类全有的推进 已经实现了具体的一些点创突破
that can be expected in the future of the project. In the future, there will be more of this project on the future.
On decentralization, we're mostly focusing on our IQID, which is the ITE Creator Center. And we have seen some positive initial progress, such as the number of creators, the content upload numbers are trending well. And we're seeing AI adoption is progressing across our core content categories and with initial breakthroughs achieved. For example, for the projects we both in production and also launched. And in the future, we expect a greater scale of content to be released. Over the long term, we believe these two strategies, meaning the decentralization and all-in AI, these two will structurally improve our content cost, revenue quality, profitability, and cash flow.
Operator
Your next question comes from Lincoln Kong with Goldman Sachs.
Thank you, Mancham, for taking my question. So my question is about IG's overall AIGC strategy and how's our plan in terms of each content categories.
Thank you, Lincoln. We'll invite our Chief Content Officer Mr. Selfree to take this question. Please go ahead. First of all, we believe AI reduces the basic costs and barriers to production, but it doesn't lower the bar for creativity and judgment. We leverage AI to optimize the economics of content production while reinforcing our core mode, which is storytelling and aesthetic judgment, emotional expression, and also visual language. Our goal is to advance on both fronts, premium content quality and scale content supply. Strategically, we will prioritize core long-form video while accommodating micro-drama and micro-animation. Now we use a revenue-sharing model to improve capital turnover. We'll share our thoughts by category based on the pace of AI adoption at scale. First of all, for micro dramas, we're seeing rapid adoption with AIGC as the primary source of supply. We primarily use a revenue-sharing model and leverage algorithm recommendations and a decentralized operation to deliver a diversified, rapidly refreshed and a skilled content supply. For animation, a microman animation, we believe these are AI native content. So AIGC will serve as the primary supply.
So we are mainly using AI to increase the ability to increase the performance of the project, and to increase the growth of the project. Next year, we expect to show more AIGC works in order to enrich the细分 of the people, and to expand its稳定供给.
For animation and children's content, these have mature CG industrialization, are a good fit in our view, and we are seeing rapid AI adoption. AI significantly boosts efficiency, and our pipeline is expanding.
For next year, we will release more AIGC titles to serve niche audiences and broaden stable supply. 它的策略是我们要积极拥贸AI 重点是探索奇幻 智怪 冒险等适配的一些风格化题材 拓展类型的多样性 现在部分项目已经上线了 后续我们将加速规模化的播出 兼顾成本优化和内容多元化 截至目前我们已经上线了16部分账的AIGT中具 以及多部的网络故事片
For short-form dramas and internet feature films, these are medium in production complexity and volume, and compared to long-form content, these are lighter in complexity and also in volume as well. And we're actively adopting AI, focusing on genres like fantasy, supernatural, and adventures to widen our genre-mates. Some titles have already launched, and we will speed up the S-scale releases and balancing cost efficiency and content diversity. So far, we have released 16 AIGC short-form dramas under a revenue-sharing model, along with several internet feature films. 对于情感与艺术高度最高价值最大的长剧集和电影长篇而言 它的AI渗透的速度应该是最慢的一个 所以说我们还是坚持实拍主导 AI来辅助 品质还是保证它的品质 通过AI主要是来降低成本 提高效率 For long-term dramas and theatrical films we believe carry the highest emotional and artistic value, but these are relatively slower to adopt AI at scale. And for these content, we will focus on life action. To quality first, use AI to support our production, and use AI to... Thank you.
Operator
Your next question comes from Vicky Wei with Citi.
In the context of the AI era and the ongoing shift towards decentralization, how do you view ITE's core competitiveness, and what kind of value does ITE offer to content creators? Thank you.
Thank you. We'll invite our CEO to take this question. We believe in the AI era, video industry competition centers on end-to-end capabilities, which is from concept to commercialization, and there are quite a few essentials that are required for this. For example, the ability to bring together professional talent, generate compelling ideas, run industrialized production, have a comprehensive understanding of content review and compliance, deliver effective content distribution, and drive diversified monetization. And these are the core modes Ike has built over the past decade. So our values to creators with their three areas that we are targeting, and also a slogan, help them to be seen, generate income, and gain recognition. First of all, IT has a major share of the video entertainment audiences, so the creators have greater capabilities or possibilities to be seen on the IT platform. And also, IT has deep expertise in long-form video production, and we have established a very mature, industrialized content production mechanism.
In addition, IT also has a map of viewership data, a very rich IP, and also licensing resources. and also a very strong ecosystem. 报德戏剧场,还有创作者的客服,这个七大支持服务体系。
We have built a seven-pillar creator support system. The IQID, which is the ITE Creator Center, NATO Pro, our professional production platform, physical creative centers offline, training programs, and IT NADO and AIGZ Venture Summit, helping the creators with the fund support, and the Peter Kao and IT AI Theater for benchmark production, and last but not least, a dedicated creator's customer service.
那个主题和创作者进行深入的探讨 On August 20th in Beijing, which is in today's, we will host the IT Creator Conference featuring in-depth discussions on content ecosystem development, frontier AI opportunities, and the creator empowerment. Thank you.
Operator
Your next question comes from Zai Zhu with Guangfa Security.
And thanks for taking my question. I will translate my question in English. I want to know about the latest development in overseas business and how the operational is serious for more nature markets like Thailand can be replicated in other markets. Thank you.
Thank you, Gigi. We'll invite Mr. Zhang Haeyang to take this question.
Hello. The airline industry continues to keep the growth of the growth of the growth of Q2. The overall growth of Q2 is 40% of the growth of Q2. And according to our internal management system, we continue to keep the growth of the growth of Q2.
Our overseas business maintained rapid growth in Q2, with overall membership revenue grew 40% year over year, and we remained profitable on a managerial accounting basis. And Thailand is the market where we enter earliest and where our operating model is relatively mature. It's still delivered solid growth year over year in Q2, and with steady top-line growth and continued profitability improvement in the quarter as well. And in new markets, such as Brazil and Mexico, we see membership revenue increase 215% and 150% year-over-year, respectively. We categorize our overseas markets into mature growth and potential markets, where mature markets we aim for stable profitability, Growth market focused on accelerated trading revenue with disciplined investment. Thailand serves as our proving ground. What we have validated is a set of reusable operating capabilities. So using C-Drama as the foundation and as the same marketing to amplify influence of Chinese content and expanding a local content supply and tailoring the content that's adapted to the local audiences.
We are also partnering with our local carriers, platforms, and payment channels to scare the membership base.
And we're also leveraging AI to improve the translation and distribution, and also production efficiency. Because the content preferences and collaboration channel structures differ by markets, What we replicate are these underlying capabilities, while the local teams do make targeted adaptations, for example, applying Thailand's operating capabilities to other markets. Our strategy is not to chase conflict camps. We are guided by unit economics and operating contribution, and we will expand into new markets after validating revenue quality and profit-generating capabilities. Thank you.
Operator
There are no further phone questions at this time. I'll now hand back to the company for closing remarks.
Thank you, everyone, for joining the call today. If you have further questions, do not hesitate to contact us. Thank you, and see you next quarter.
Operator
That does conclude our conference for today. Thank you for participating. You may now disconnect.
