Hello, ladies and gentlemen, thank you for joining 36Kr Holdings Inc.'s First Quarter 2020 Earnings Conference Call. Today's conference call is being recorded. I will now hand it over to your host, Yolanda Liu, IR Manager of the company. Please go ahead, Yolanda.

Thank you very much, operator. Good evening. Hello, everyone, and welcome to 36Kr Holdings' First Quarter 2020 Earnings Conference Call. 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.36kr.com. Participants on today's call will include our Co-Chairman and CEO, Mr. Dagang Feng; and our CFO, Ms. Jihong Liang. Mr. Dagang Feng will start the call by providing an overview of the company and the performance highlights of the quarter in Chinese, followed by an English interpreter. Ms. Jihong Liang will then provide details on the company's financial results before opening the call for your questions. 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 filed with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please note that 36Kr's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. 36Kr's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. And please note that all amounts are in RMB. I will now turn the call over to our Co-Chairman and CEO, Mr. Dagang Feng. Please go ahead.

I will now turn the call over to our Co-Chairman and CEO, Mr. Dagang Feng. Please go ahead.

Thank you, and hello, everyone. Thank you for joining us for our first quarter 2020 earnings conference call. We just completed a challenging first quarter of 2020, where the COVID-19 pandemic and its containment measures disrupted the normal business operations of our clients, ultimately creating delays in their demand for our services. Despite the unfavorable macroeconomic conditions, we were able to promptly take actions in response to the evolving market dynamics and adjust our operational strategy to address clients’ changing demands, extending valuable support to the New Economy community. Before providing an overview of our first quarter performance, I want to thank all of our employees for both their dedication and creativity, which allowed us to not only overcome numerous challenges but also make positive overall headway during this unprecedented time. As a permanent and influential New Economy-focused content provider, we once again demonstrated our strength in content production with further content enhancements, such as the rollout of new themed columns and engaging hot topics. In the first quarter, we published over 26,579 pieces of content in various modalities, including an increasing volume of our content in popular media forms such as short video and live streaming. Our timely and high-quality content distributed through diverse channels has allowed us to generate healthy and growing traffic. Our average monthly page views reached 473.9 million in the first quarter of 2020, up 110.2% year-over-year, reflecting the strong reception of our engaging content across our expanding user base. In the first quarter of 2020, despite adverse market conditions, our enterprise value-added services delivered modest revenue growth of 3.4% year-over-year. In addition, since the COVID-19 outbreak in January, we have made swift responses, which included the introduction of a series of special programs to support companies in need. Through mobilizing our connections and resources in the New Economy community, these programs aim to provide companies, especially SMEs, access to dependable enterprise services, potential financing resources, effective user and customer acquisition approaches, as well as technological support for their online transition of operations. We also actively engaged with companies that actually experienced booming demand due to the pandemic containment measures, helping them capitalize on the evolving market opportunities. Our featured special online events and live streaming panels in the first quarter further aided enterprises in broadening their outreach to the market and garnering effective sales leads, as well as enhancing connections with business partners in their respective industries. With our firm efforts in serving a broad array of corporates, enterprise value-added services have grown into our most crucial sector and the biggest revenue contributor to our business. Our advertising services suffered more impact from the COVID-19 pandemic as some of our multinational clients delayed their marketing plans due to the extended Chinese New Year holiday and suspended operations in the first quarter. To soften these temporary headwinds, we have been pursuing and tapping into more industries while providing brands with more targeted advertising and marketing solutions. Our customized and innovative advertising services are gaining increasing popularity amongst New Economy companies, but also well received by companies that operate in traditional industries, such as the automobile and real estate sectors. For example, our tailored and creative marketing programs, such as new automobile model launches through online live streaming events, bring new ideas and opportunities for automobile OEMs. Additionally, by leveraging our strong content capabilities and robust traffic, our new media channels, like Testing with Superman, are effectively introducing a diverse selection of sought-after products from our clients to a massive audience on 36Kr. Moving on to our subscription services, although revenue from our subscription services had a substantial year-over-year decrease as our higher-priced offline courses were constrained due to the virus containment measures, we have promptly transitioned the majority of our courses to online channels. We also produced more engaging live-stream discussions and online courses, such as our online Mini Business Administration program that helped individuals better adapt to changing economic environments. We expect to resume our offline courses as the COVID-19 situation gradually improves in China, while further expanding our paid user base online with premium courses and a superior learning experience. Regarding our overseas operations, as the pandemic situation evolves globally, we have taken precautionary and necessary measures to protect the health and safety of our employees outside of China. At the same time, most of our overseas operations are still ongoing with collaborations and new programs underway. Our overseas presence is generally in Southeast Asia and Japan, where the pandemic situations are relatively stable. To more effectively administer our programs amid the current situation, we have successfully transitioned some of our projects online. We will continue to enhance our influence in the overseas market with our high-quality content and service solutions. Overall, in the face of a challenging first quarter, we have demonstrated our effective ability to execute, take prompt action, and make operational adjustments in response to changing market dynamics. Looking forward, we are well-positioned to grasp more market opportunities as the economy recovers. Through collaboration with enterprises in broader industries and the continued diversification of our client base across companies, governments, institutional investors, and individuals in the New Economy, we will keep expanding our connections and brand influence within the community. Meanwhile, we will deploy popular online modalities such as live streaming and short videos to further enhance our interaction with our users and clients, bringing them efficient solutions with a superior experience. Last but not least, we stay true to our commitment to our shareholders and are determined to protect shareholder value under all circumstances. Therefore, our executives and key insiders have voluntarily chosen to extend our lockup period. The company's Board also approved a stock repurchase program. These initiatives demonstrate 36Kr's confidence in the long-term prospects of the company's development.

Thank you, Mr. Feng, and hello, everyone. In the traditionally weak season of the first quarter, the unprecedented COVID-19 outbreak, coupled with early Chinese New Year in 2020, applied intensive pressure on our top-line performance. Specifically, the postponed marketing plans from our clients and the restriction of the offline policies have severely impacted the revenues of our advertising services and the subscription services, both of which usually deliver relatively higher gross margins. As a result, we reported a substantial decrease in gross profit and lowered gross margins for the quarter compared with the prior year period. Additionally, in consideration of the broad impact of the pandemic on the macroeconomics and the majority of our corporate clients' businesses, we decided to take a conservative approach and deploy a more prudent doubtful debt policy. As such, we recognized a significant one-off doubtful debt provision for accounts receivables in the first quarter of 2020, which further adversely impacted our bottom-line results. Please note, along with the economic recovery, this provision shall be reversible if we ultimately collect the outstanding accounts receivables overdue. As the pandemic is gradually contained in China, we will continue to proactively explore, identify, and fulfill the evolving demand of our clients by providing diversified and premium services, while broadening our monetization channels and capabilities in addition to more prudent cost control. We believe in the resilience and strength of the New Economy and our ability to grow and thrive along with a vibrant community that is full of opportunities. Now I'd like to walk you through more details on our first quarter of 2020 financial results. Total revenues were RMB 65.2 million in the first quarter of 2020 compared to RMB 83.8 million in the same period of 2019. Online advertising services revenue decreased by 39.5% to RMB 21 million in the first quarter of 2020 from RMB 34.8 million in the same period of 2019. The decrease was mainly attributable to the impact of the COVID-19 outbreak in China in the first quarter of 2020. Enterprise value-added services revenues increased by 3.4% to RMB 42.8 million in the first quarter of 2020 from RMB 41.4 million in the same period of 2019. The increase was primarily attributable to integrated marketing services. Subscription services revenues decreased by 82.3% to RMB 1.3 million in the first quarter of 2020 from RMB 7.6 million in the same period of 2019. The decrease was mainly attributable to the impacts of the COVID-19 outbreak in China in the first quarter of 2020. Cost of revenues was RMB 59.7 million in the first quarter of 2020 compared to RMB 59.4 million in the same period of 2019. The increase was mainly attributable to the increase in the execution fee of the enterprise value-added services, payroll-related expenses, and share-based compensation expenses. The increase was partially offset by the decrease of video producing costs related to the online advertising services. Gross profit was RMB 5.4 million in the first quarter of 2020 compared to RMB 24.4 million in the same period of 2019. Operating expenses were RMB 102.8 million in the first quarter of 2020 compared to RMB 41.8 million in the same period of 2019. The increase was mainly due to the increase in general and administrative expenses and sales and marketing expenses in the first quarter of 2020. Sales and marketing expenses increased by 45% to RMB 34.9 million in the first quarter of 2020 compared to RMB 24.1 million in the same period of 2019. The increase was primarily attributable to an increase in share-based compensation expenses. General and administrative expenses were RMB 59.3 million in the first quarter of 2020 compared to RMB 8 million in the period of 2019. The increase was primarily attributable to a decrease in allowance for doubtful accounts and share-based compensation expenses. Research and development expenses decreased by 11.9% to RMB 8.5 million in the first quarter of 2020 compared to RMB 9.7 million in the same period of 2019. The decrease was primarily attributable to a decrease in payroll-related expenses. Share-based compensation expenses recognized in cost of revenue, sales and marketing expenses, research and development expenses, and general and administrative expenses in total were RMB 13 million in the first quarter of 2020 and RMB 1.2 million in the same period of 2019. Other income was RMB 1.4 million in the first quarter of 2020, staying the same level compared to 2019 Q1. Income tax credit was RMB 90,000 in the first quarter of 2020 compared to RMB 2.3 million in the same period of 2019. The change was primarily attributable to a decrease in the profitability of certain subsidiaries in the first quarter of 2020, as well as the fact that we provided full allowance to the deferred tax assets. Net loss was RMB 95.5 million in the first quarter of 2020 compared to RMB 13.6 million in the same period of 2019. Non-GAAP adjusted net loss was RMB 82.9 million in the first quarter of 2020 compared to RMB 12.4 million in the same period of 2019. Net loss attributable to 36Kr Holdings Incorporation's ordinary shareholders was RMB 95.4 million in the first quarter of 2020 compared to RMB 130 million, which includes the accretion on redeemable non-controlling interests, accretion, and redesignation effects of the convertible redeemable preferred shares in the same period of 2019. Basic and diluted net loss per share were both RMB 0.093 in the first quarter of 2020 compared to RMB 0.421 in the same period of 2019. As of March 31, 2020, the company had cash and cash equivalents, restricted cash, time deposits, and short-term investments of RMB 166 million compared to RMB 264.2 million as of December 31, 2019. This concludes all our prepared remarks today. We will now open for questions.

Your first question comes from the line of Roger Duan from Needham.

So I have 2 questions. First is, have we seen any meaningful recovery of business spending after the reopening of the economy? Is there any difference between small and large-scale companies that we're seeing? And the second question is, can we expect to see new products and services to be introduced in 2020? And can you give us any update on the 36Kr Plus platform?

So I have two questions. First, have we observed any significant recovery in business spending following the reopening of the economy? Is there any distinction between small and large-scale companies in this regard? Secondly, can we anticipate the introduction of new products and services in 2020? Additionally, could you provide an update on the 36Kr Plus platform?

Okay. I'll provide a translation. Regarding the first question, as pandemic containment measures are eased and offline businesses start to recover, the data indicates an operational rebound in sectors like tourism, catering, and consumption, suggesting that business spending in these areas will soon return to normal. At 36Kr, we observe that smaller companies performed better in Q1. However, we believe that demand from larger corporations has simply been postponed, similar to the situation with local governments, and we anticipate these demands will materialize and aid our revenue shortly. The overall economic landscape tends to affect smaller companies more significantly, tightening their budgets. Still, as mentioned earlier, they showed better performance in Q1. As for the second question, we've identified a new business opportunity during the pandemic. This involves creating a commercial live streaming ecosystem. We launched our China concept stock channel in March, and we've already connected with several clients, positioning ourselves to capture a notable market share this year.

Our next question comes from the line of Kenneth Fong from Crédit Suisse.

I have two questions. First, how has COVID-19 impacted the company's business? Have there been any structural changes observed? Additionally, how much of the business is expected to return later? My second question is regarding the online training business. Have you experienced a significant increase in signups during the COVID-19 pandemic?

I have two questions. The first one is, how has the impact of COVID-19 affected the company’s business? Are there any structural changes we have observed? Additionally, how much of the business might return later? My second question is regarding the online training business. Have you noticed any significant increase in signups during the COVID-19 pandemic?

Okay. Kenneth, I'll quickly translate. For the first question, we expect demand from our advertising service to gradually recover, while the structural impact will be evident in our enterprise value-added services sector. Many market observers believe that the shift from offline to online will be significant and long-lasting, and we share this belief. Our offline events are facing serious challenges, but we plan to introduce more offline initiatives in the coming quarters to mitigate the effects of COVID-19 on our offline operations. Regarding the second question, as we noted in the first quarter, our content production has increased significantly, and our average monthly page views have risen greatly. However, our online training business has been adversely affected for two main reasons: first, it is difficult to separate our online training from our offline components; second, we concentrated on offering a wide array of free courses for public welfare following the pandemic outbreak, which reflects our commitment to social responsibility.

Our next question comes from Yu Sang Wan from CICC.

I am wondering what our current structure in terms of company size and industry is in China? And could you please share your future plans on further diversifying the client base?

Our next question comes from the line of Yu Sang Wan from CICC. I am wondering what our current structure in terms of company size and industry is in China? And could you please share your future plans on further diversifying the client base?

Thank you, Yu Sang. We believe we will continue to diversify our client base both in the short and long term. At the end of 2019, our customers were spread across 19 industries, including 3C, finance, retail, real estate, and e-commerce. The ratio of traditional TMT customers is 55 to 45. Although some of our existing clients delayed their expansion in the first quarter, we received new demand from sectors that saw significant growth, such as online education, online content, and enterprise services. In the second half of the year, we plan to target industries like online games, entertainment, and high-end consumption. Additionally, we expanded our client base to include more local governments during the pandemic by offering online services, which helped enhance our brand image and created synergies.

Our next question comes from the line of Brian Li from AMTD.

We know it's a difficult situation right now. So I want to know, is there any change in the industry type of your key customers amidst COVID-19? And have you expanded your customer base to new industry types?

We diversified our client base to include more local governments during the pandemic by providing services online, which enhanced our brand image and created synergies. Brian Li from AMTD asked if there has been any change in the industry types of key customers during COVID-19 and if we have expanded to new industry types.

Okay. I'll provide a brief translation. I believe this question relates to the previous one from Yu Sang. To elaborate on our client base, the leading companies in the online education sector are already our clients. Several top online content providers used our platform in the first quarter, who had not engaged with us last year. The same goes for online enterprise service providers. Thank you, Brian.

Our next question comes from the line of Sisi Tang from Citic Securities.

My question is, which segment of the revenues are key focuses for next year?

To share more about our client base, the leading companies in the online education sector are already using our platform. Several top online content providers made investments in our services in the first quarter, which they did not do last year. The same is true for online enterprise service providers. Thank you, Brian. Our next question comes from Sisi Tang from Citic Securities. My question is, which revenue segments will be key focuses for next year?

Thank you, and I will just provide a brief translation. We believe that enterprise value-added services will remain our primary focus. We are committed to enhancing our service offerings while broadening the range of services to improve conversion rates from users to customers. We anticipate that live streaming will be a fundamental tool in this industry, and we plan to create a commercial live streaming ecosystem this year, which will enhance our ability to acquire consumers and strengthen our brand influence. During the pandemic, we effectively catered to various types of customers through live streaming.

Our next question comes from Wentao Liu from Huatai Securities.

I have a question about the business strategy. The New Economy industry and primary market have experienced some rationalization changes. So under this new normal, how will management adjust business development plans for the next few years?

I have a question about the business strategy. The New Economy industry and primary market have experienced some rationalization changes. So under this new normal, how will management adjust business development plans for the next few years?

Thank you, Wentao. To answer your question, we have indeed observed that the primary market has not performed very well. While many may think that 36Kr was focused solely on the primary market, we want to clarify that over the past three years, we have undergone a significant transformation in our business model. Until the end of last year, revenue from traditional enterprises exceeded that from smaller enterprises, primarily in the TMT sectors. Going forward, we will implement strategic initiatives to engage more with the secondary market and empower a broader range of industries. We hold an optimistic outlook on China's New Economy and believe that the new normal represents a better integration of the New Economy with the so-called old economy. We are dedicated to connecting various participants in the New Economy by introducing more customized value-added services and subscription offerings.

As there are no further questions now, I'd like to turn the call back to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact 36Kr’s Investor Relations through the contact information provided on our IR website. Thank you.

This concludes our conference call. You may now disconnect your lines. Thank you.