Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter of 2019 Momo Incorporated Earnings Conference Call. [Operator Instructions]. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. And I'd like to hand the conference over to your first speaker for today, Ms. Cathy Peng. Thank you. Please go ahead ma'am.

Thank you, operator. Hello, everyone, and thank you for joining us today for Momo's third quarter 2019 earnings conference call. The Company's results were released earlier today and are available on the Company's IR website. On the call today from Momo are Mr. Tang Yan, Co-Founder, Chairman and Chief Executive Officer, Mr. Wang Li, President and Chief Operating Officer; Mr. Wang Yu, Founder and Chief Executive Officer of Tantan, and Mr. Jonathan Zhang, Chief Financial Officer. They will discuss the Company's business operations and highlights as well as the financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise except as required under law. I will now pass the call over to Mr. Tang, I will translate for him. Mr. Tang, please.

[Foreign Language] Good morning and good evening everyone. Thank you for joining our conference call today. Q3 was another robust quarter. We continue to deliver strong financial results both in terms of revenue and profitability. In addition, we are also making solid progresses with our product initiatives and start planting seeds for future growth. Now please allow my team and I to take you through the details. [Foreign Language] Firstly, an overview of the financial performance. For the third quarter 2019, total revenue reached RMB4.45 billion, up 22% year-over-year. Excluding Phanta City impact, which was a non-recurring, non-core revenue item in last year, total revenue for Q3 2019 grew 28% year-over-year. Adjusted operating income for the quarter was RMB1.2 billion, up 41% year-over-year and representing a 27% adjusted operating margin. Excluding Tantan's financial impact, core Momo's adjusted operating margin -- operating income for the quarter was RMB1.36 billion, up 38% year-over-year and representing a 33%, adjusted operating margin, up from 28% from the same period last year. The consistent and robust profit growth trends of the core Momo give us the flexibility to maintain a good balance between shareholder return and investment for the future of the Company. [Foreign Language]. Now a deeper look into the quarter. Firstly, the growth of our community. The core Momo application had 114.1 million monthly actives for the third quarter 2019, up 3% year-on-year and 600,000 net addition from the previous quarter. After the homepage suspension of the core Momo application was lifted in June, the engagement metrics have been showing a rebound trend. Total time spent in September was up high-single digit percentage from that in June. [Foreign Language]. In the third quarter 2019, Total paying users for the core Momo platform was RMB8.9 million a 300,000 net addition from last quarter. The…

[Foreign Language]. Thanks. Now, let me review the Company's business results and the progress we've made across our priorities on the monetization side. Number one, drive steady and healthy growth from live broadcasting business through product innovations and operational efforts. Number two, cultivate the paying potential from middle cohort and long-tail users through greater VAS experience. Number 3, drive monetization growth of Tantan through optimization of existing premium features and the introduction of new paying experiences. Wang Yu will elaborate on the third one later in his remarks. So next, I'm going to take you through what we've done and the future plans regarding the first two priorities. [Foreign Language]. Firstly, on live broadcasting. Total revenue from live broadcasting business for the quarter was RMB3.28 billion, an increase of 18% from the same period last year. Our strategy to apply different products and operational efforts to drive spending from different cohorts of users continue to pay off in the third quarter, driving steady and healthy growth in revenues. In June, we rolled out the nobility system with the key objectives to provide better paying experience to the high paying users. In Q3 based on the initial learnings and feedback-- and the feedback from the users, we made some optimizations to the system. For example, for those who are able to maintain their titles for multiple months in a row, we would grand additional rewards and benefits. As a result, we are seeing a strong mentality among the high paying users to keep up the spending in order to level up or keep their respective titles. In addition to the nobility system, the other initiative that the team has taken was the offline music tour branded as [Foreign Language] in Chinese. This series of event aims at enhancing the experience for…

Thanks. So, let me briefly review Tantan's operational and business developments in the past quarter and our next step plans. First, on user growth. The suspension of download from Android application stores was lifted around late June, early July timeframe. The download and payment services suspension for iOS was lifted in mid-July. After that, we significantly stepped up our marketing efforts and we're able to see a rapid recovery in users and engagements. Total paying users of Tantan for the third quarter of 2019 reached 4.5 million, a nice rebound from the 3.2 million in the second quarter. The 1.3 million quarterly net addition in paying users was largely due to the recovery in active users engagements and to a lesser degree, the slight improvement in conversion, which can be further attributed to the paying feature optimizations introduced in the third quarter. Now briefly on revenues. Total revenue for the third quarter was RMB310 million, up 89% year-over-year and 9% increase from the previous quarter. As we called out on our last earning call, the ban on download and payments has caused the substantial lag between total grossing and revenue recognition. As a reminder, our Q2 grossing declines 24% Q-on-Q due to the service suspension, but revenue only showed a 4% sequential decrease. It means that a large portion of the 24% grossing declined during the second quarter got pushed into the revenue lines in Q3 and beyond. That lagging effect has caused our Q3 revenue to rebound to a lesser degree than our total grossing did. On a sequential basis, the 9% growth in revenues in Q3 was based on a grossing revenue increase of more than 40%, which was largely in line with the growth in the number of paying users with our people remaining at pretty stable…

Thank you. Hello, everyone, thank you for joining our conference call today. In the interest of timing, let me jump directly into the review of cost and expenses items as the overall financial highlights and revenue line items has been covered pretty comprehensively in the earlier remarks. Our non-GAAP cost and revenue for the third quarter of 2019 was RMB2.18 billion compared to RMB2.01 billion for the same period of last year. Non-GAAP cost of revenue as a percentage of total revenue was 48.9%, a decrease from 55% from Q3 2018. The non-GAAP cost of revenue for third quarter of 2018 included the production cost of Phanta City, which was RMB215 million. Excluding the Phanta City impact, the non-GAAP gross margin for Q3 2019 was up 2.5% year-on-year due to lower payout ratio from both live streaming and VAS businesses. As Wang Li mentioned, we are very proud that the team has been able to drive robust revenue growth at a substantially lower payout ratio, while many other platforms have been trying to compete with the rising payout. Such achievement is on the back of Momo's unique position as an open social platform and the management's firm commitment to profit growth. On a sequential basis, non-GAAP gross margin for the quarter remained stable. Non-GAAP R&D expenses for the quarter was RMB254 million compared to RMB197.4 million for the same period of last year, representing 5.7% and 5.4% of total revenue respectively. We ended the quarter with 2,209 total employees of which 588 are from Tantan. The R&D personnel as a percentage of total employees for the group was 54% compared to 53% in Q3 last year. Non-GAAP sales and marketing expenses for the third quarter was RMB701.7 million or 15.8% of total revenue compared to RMB502.8 million or 13.8% of…

Yes, just a -- as always a reminder, for those who can speak Chinese, please ask your questions in Chinese first, followed by English translation yourself. So with the limited time, I guess we'll jump right into the questions, operator please.

Thank you. Ladies and gentlemen, yes we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Jialong Shi of Nomura. Please go ahead.

Hi, good evening management. [Foreign Language]. Good evening management. Thanks for taking my questions. I have two questions. My first question is about Tantan. We saw from third-party data that Tantan, MAU and the DAU were recovering from the low in July. However the recovery speed appeared rather slow, as of October still based on the same third-party data. Tantan's DAU was still lower than the DAU recorded back in June, before the suspension happened. So I was wondering what was the trend that management monitored from your internal data, whether the trend shown by these external data was in line with the trend you have seen internally. And if the external data were correct, when do you think Tantan will be able to fully recover its DAU to previous normal level, and what are your strategies to bring back those lost users? And my second question is about the dividend. We saw several Chinese companies are buying back shares or pay cash dividend to shareholders and Momo has a lot of cash on the balance sheet and besides your business it's generating a lot of operating cash flow every quarter. So I was just -- and Momo actually paid the dividends this year, so I was wondering if the Company will consider paying a regular dividend going forward. Thank you.

Okay. This is Yu Wang. I'll answer the first question. I'm not exactly sure what third party data you're referring to. So I can't really comment on it. We do not advise investors to rely on any third-party data as indicators of our user trend, because the third-party data that we have seen is obviously not consistent with our internal metrics. We have disclosed the paying user account -- user number of Tantan, as investors can see the September paying user accounts showed a significant increase from June. That was largely a reflection of the rapid recovery in the MAU and DAU on the platform, after the download and payment restoration. It's true that our DAU and the paying user number has not yet gone back to the peak level that we saw before the suspension. That was because that we've significantly tightened up the content reviewing system and anti-spam policies. In the short-term, it certainly will post a negative impact on user growth, but longer term, we think it's going to benefit our ecosystem. Our user growth strategy consists of two key components. Enriching the product and making our marketing approach more effective. On the product side, as said earlier in the call, we've been making impressive progress with our new features and services both free ones and premium ones. We're very confident that these new initiatives on the product side will help us improve the retention of users, which is crucial for our user growth. And the fourth we'll continue to improve marketing efficiency as well. Overall we're very confident next year Tantan's users and paying users will continue to grow rapidly.

[Foreign Language] Okay, let me quickly translate. With regards to capital allocation, the company has several key priorities in consideration. Number one is to put the profit back into the business to drive organic growth and number two is that we look at whether we have any good investment opportunities with reasonable valuation in order to grow beyond what we can do organically. And number three is of course to return the cash to the shareholders in the form of dividends. Momo as a company during the past several years has been showing a consistent record of profit growth supported by strong cash flow. At the same time, what has also been pretty consistent is that we've been generating a huge amount of cash on top of what we can reinvest either organically or through M&As. Under that sort of premise, the company does have very strong intention to continue to share the prosperity with the shareholders in the form of cash dividends. Hold on a second.

Just one color to add, currently to balance the supporting the business growth needs versus dividends intentions, we'd like to keep our dividends under the special dividend form instead of a regular dividends.

Operator?

Thank you. Our next question is from the line of…

Operator, just one quick thing to add given the limited time, we would like to limit the number of questions asked by each analyst to just one, so that we have more people getting the opportunity to ask questions, please for the following person asking question, please pay attention to that limit in the number of questions. Thank you.

Thank you. Our next question is from the line of Alex Poon of Morgan Stanley. Please go ahead.

[Foreign Language]. I will translate my question. So paying for social networking services looks like an early industry in China. What do you think in a three to five years time, would this industry look like content sharing platform like the short video platforms depending on the content production or is it like online travel one-stop shop. You only stay in one platform or is it like job market you put your CV everywhere, you use every platform or you use like e-commerce. Did you go for different platform for different products based on your experience with your own user base payment behavior frequency stickiness, how many apps do you think the China market will turn out to have and market share and wallet share would this be similar to U.S. and Europe situation where Tinder dominates? Thank you very much.

[Foreign Language] Well this is a pretty long question. So I'll try to answer to try to address the question to the sense that we can. Alex, as you said, we -- Momo as a company we play in the what we call open social space. I think the competitive landscape would look pretty similar to what you're seeing in the Western market in a sense that there will be some level of monopoly that you're going to see in the space. I think what's going to happen is that the leader number one player in this space is going to have the largest market share and we'll leave a small portion for a number of different players to grab there in the market, but the difference between open social space and a closed circle social space is really is I don't think in the open social space it will be a winner-takes-all kind of market, which means that there are still going to be opportunities for other small players whereas in the closed circle kind of social space. There is usually just one biggest, biggest dominant player out there. So I think that helped -- that answers your question. [Foreign Language]. Yes, okay. For the fourth part. I guess what I would do is, I would just reiterate the strategic direction that we are moving towards, I think Momo as a Company we've always positioned ourselves in the social and broader interest payment space in China and outside of China. So I think obviously we're going to evolve somewhere down the path over the coming three to five years. But no matter how we evolve, I guess what we do and the initiatives that we are going to be taking will largely happen within that broader boundary revolving around the two keywords. One is social, the other one is entertainment. I hope that addresses your question. Operator, ready for the next.

Thank you. Our next question is from the line of Natalie Wu of CICC. Please go ahead.

Hi, good evening. Thanks for the opportunity. [Foreign Language]. I will translate myself. So my question is regarding the overseas expansion initiative by Momo. I noticed that Momo launched the overseas product Ola just recently, just wondering what's the position versus Tantan in the overseas regions. And secondly what will be the spending plan for that overseas initiative next year. And just very quickly just wondering can management give us some color on Tantan spending plan in 2020? Thank you.

[Foreign Language] Okay, let me briefly translate. In the past few months, we have done a pretty thorough research on the oversea development opportunities. One of our key observations is that in overseas market in that open social space, the user demand are actually also very diversified and fragmented. So and it's pretty common to see one user using multiple applications to date or otherwise socialize. So we do see a lot of good growth opportunities in a number of different verticals. So other than the single application is -- well of course our oversee -- overall overseas expansion plan include Tantan. But other than the single application of Tantan, I guess, we are going to make other new bets in overseas markets as well. But I think what Momo is doing and what Tantan is currently doing will be slightly different in terms of positioning and the key goal. With regards to direction and the overall spending plan, I guess, here is what we can say Momo as a -- Momo's teams forte lies in the social space. So our oversea efforts were also largely centered on the social and the interactive entertainment space. With regards to how we are going to be choosing in between and spending between different products, I guess we will be very, very focused on ROI, which means that, if there are projects, which we deem will be difficult to recover the cost within a reasonable period of time, we tend to take a very prudent kind of position towards those sort of projects. So I guess that's the overall plan that we have regarding the overseas expansion plan. I guess there is a more specific question about Tantan's spending. Wang?

Yes. So for Q4, sales marketing for the domestic business will come down meaningfully from that in Q3, and back to the levels seen before the disruption. But overseas spending will increase from the Q3 level. Overall, we should still see a decrease in sales and marketing in tens of millions from Q3.

Okay, operator, next?

Yes, thank you. Yes. We will now take our last question due to time constraint. We now have Tian Hou of TH Capital. Please go ahead.

Yes. Thanks. [Foreign Language]. So regarding the new product lease, not long ago, Momo, you know, had introduced to the market ZAO, it is a very interesting once they were introduced to the market quickly become one of the most popular app. And I wonder what's the management's plan to use this app to advance your users' growth and your monetization, what the plan? That's the first question. The second one is regarding this year's galla what are the some different points will be compared with last year. Thank you.

[Foreign Language] Yes, let me translate the first question and then Mr. Tang can answer the second questions. So after the application of Zao was launched the user data that we have been seeing far exceeded our original expectation. I think that our performance really came from the fact that the team is really pretty sensitive in how to apply the new cutting-edge technology to serve the users' entertainment demand, and it also shows that Momo team's strong capability in product innovation has been recognized by the users in a mass scale. So I think in the future we're going to continue to upgrade and extend the use cases of this applications and we are also looking to significantly improve the user stickiness around the application. And at this point all of these jobs and you know key initiatives our team has been working very hard on these different priorities for the product. I'm pretty confident that next year we'll continue to deliver surprises to our users. And more broadly at a strategic level, I think the product innovation represented by the launch of ZAO has always been the priority for Momo as a Company, and such product innovation involve the innovation around the core Momo application, but also involve the innovation regarding new standalone application and we will continue to, I think we have been working on this for quite a while and we have made some very impressive progresses and we will -- down the road we're going to continue to push hard on that front. So that's the answer to the first question. [Foreign Language]. I think one of the guiding principles for the live broadcasting team this year has been de-emphasizing the quarterly tournament event as a revenue driver and to improve the daily routine revenue…

Thank you. Ladies and gentlemen that concludes our conference for today, and thank you for participating. You may all disconnect.