Qutoutiao Inc (NASDAQ:QTT) Q2 2020 Earnings Conference Call - Final Transcript

Sep 21, 2020 • 09:00 pm ET

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Qutoutiao Inc (NASDAQ:QTT) Q2 2020 Earnings Conference Call - Final Transcript

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Executive
Xiaolu Zhu

in the second quarter of 2019. The decrease of gross margin year-over-year was mainly driven by the growth of content-related costs. R&D expenses were RMB195 million in the second quarter, an increase of 6.1% from a year ago. Sales and marketing expenses were RMB922 million, a decrease of 29.6% year-over-year. Sales and marketing expenses as a percentage of net revenues was 64% in the second quarter of 2020 compared to 94.5% a year ago, continuing to hit record low. User engagement expenses were RMB457 million in the second quarter, a slight increase of 1.7% year-over-year and a decrease of 9.9% quarter-over-quarter. User engagement expenses per DAU per day were RMB0.12 in the second quarter of 2020 and compared to RMB0.13 in the second quarter of 2019. The decrease of user engagement expenses year-over-year was primarily due to the company's ongoing efforts in optimizing user engagement expenses for its loyalty program as well as enhanced personalized reading experience facilitated by our AI platform and our enriched content library. User acquisition expenses were RMB436 million in the second quarter, a decrease of 44.7% year-over-year and 13.2% quarter-over-quarter. User acquisition expenses consist of the costs of both referrals and third-party marketing. The decrease mainly reflected the Company's efforts in optimizing its traffic acquisition strategy, and to a lesser extent, the weak advertising market environment in the first half of this year. G&A expenses were RMB92 million in the second quarter. Non-GAAP loss from operations was RMB140.6 [Phonetic] million in the second quarter of 2020 compared to RMB506 million a year ago. Non-GAAP operating loss margin was 9.8% compared to 36.5% in the second quarter a year ago, an improvement of over 26%. Non-GAAP net loss was RMB173.3 million compared to net loss of RMB496.3 million in the second quarter of 2019 and the non-GAAP net loss margin was 12% compared to 35.8% in the second quarter of 2019. Now on to the outlook for Q3 and the second half of 2020. The CCTV Report, which Eric referred to earlier caused the Qutoutiao application to be taken off at app stores for short period of time in earlier Q3. The company has observed negative impacts on its business operation and financial performance due to this in this quarter and is still evaluating the extent of such impacts. Qutoutiao highly appreciates the importance of strict compliance with all applicable laws and regulations and believes the measures taken by the company are critical to protect the interests of its users and investors in the long-term. For the third quarter of 2020, the company currently expects net revenues to be between RMB1,130 million to RMB1,150 million. This outlook reflects Qutoutiao's current and the preliminary view including preliminary assessment on the potential impact from the CCTV Report, which is subject to uncertainty. In terms of the bottom line, we expect our operating loss to be narrow significantly on a year-over-year basis and flat on a quarter-to-quarter basis in the third quarter and we remain committed to further improve