Sound Group Inc. Q4 FY2022 earnings call

• Despite global macro challenges in 2022, LIZHI promoted global business development and expanded diversified program matrix. Applied AI technology in products, launched innovative AI features like chatbot. - In 2022, proactively implemented and refined operational strategies, divested core proprietary technologies and optimized organizational structure, achieving stable revenue growth and significant profit increase. - In the audio entertainment business, incubated and launched products covering broader verticals, integrated social features, held IP-based competitions, and the LIZHI App was spotlighted in Apple's App Store. - Made breakthroughs in ASR, TTS, AI voice changer and AIGC technologies, named among China's top 100 Internet companies for the fourth consecutive year in 2022.

In the audio entertainment business, in the fourth quarter, total average mobile MAUs amounted to 50.8 million, average monthly paying users totaled 491.8 thousand, and revenue reached RMB588 million. In 2022, full year revenue increased to RMB2.185 billion, and full year gross margin improved by 400 basis points to 33%. The audio entertainment business incubated and launched products covering broader verticals, integrated social features, and held IP-based competitions. Financially, in the fourth quarter, net income surged to 58% sequentially and more than 250% year-over-year to RMB31.4 million. For 2022, full year net income reached RMB86.5 million. Revenue contribution details: The audio entertainment business is a key segment, with its performance contributing to the overall revenue and growth of the company.

• 2023 will execute globalization strategy, establish efficient global management system, empower business innovation through frontier technologies, and promote application of AIGC, voice AI and AI chatbot in business, and accelerate global business expansion. - Expect investment to increase in line with business growth in 2023, but overall proportion will remain at a reasonable level. - Plan to promote global business expansion through diverse product matrix with focus on AI chatbot, launch and customize social chatbot products, and innovate product features to enrich product matrix.

Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond the company's control. The company does not undertake any obligation to update this forward-looking information except as required under applicable law.

Q: What is company's strategy in the post pandemic era in 2023? Does management notice any changes in user behavior in the past three months post COVID? And any step up investment to drive business growth in this year?

A: In terms of overall strategic plan, will further propel global expansion strategy for 2023, promote applications of AI chatbot in global business. Pandemic made people more accustomed to live entertainment and communication, increased users' need for online companionship and emotional connections. Business strategy in 2023 is to promote global business expansion through diverse product matrix with focus on AI chatbot, expect investment to increase in line with business growth but proportion remain reasonable.

Q: Recently company has some progress in chatbot and AI area, like publishing Xiao Zhi and TIYA Bot, etc. So could management share more specific plans and strategy regarding to the chatbot area?

A: Started working on voice chatbot technology as early as 2018, accumulated experience. Will further leverage experience and technology core strategy to promote application of chatbot in business, build AI chatbot platform. Will launch chatbot functions and features in various products based on product positioning and local user demand, develop more innovative features for different usage scenarios, may expand product functions by combining avatars, voice chat and functional bot, and launch independent product lines focused on AI chatbot.

Q: With the achieved solid growth in the past two quarters. Could management share some color on measures we take? And how should we think about the growth trend even now? The second question is that LIZHI’s profitability continues to improve? And looking ahead, do you have an outlook for the profit margin and how can we achieve that?

A: For improving ARPU, refine innovative product functions, diversify operating activities to enhance user engagement and payment conversion rate; optimize promotional models with intelligent advertising system for precise user acquisition. Long-term growth trend hopes to diversify revenue streams through new business models like AI chatbot. Profitability improved in 2022, domestic business has growth potential, will expand core user groups and increase willingness to pay. Global business hopes to bring more revenue contribution through product matrix and AI chatbot application. Will continue to improve operating efficiency through refining user acquisition and operational strategies, and resource allocation based on business development stages to continuously improve overall profitability.