Ladies and gentlemen, thank you for standing by, and welcome to Second Quarter 2022 Hello Group Inc. Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma'am.

Thank you, operator. Good morning, and good evening, everyone. Thank you for joining us today for Hello Group's Second Quarter 2022 Earnings Conference Call. The company's results were released earlier and are available on the company's IR website. On the call today are Mr. Wang Li, CEO of the company; and Ms. Peng Hui, CFO of the company, who will discuss the company's business operations and highlights as well as the financials and guidance. They will both 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 provision 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 related events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are 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 this and other risks, uncertainties or 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 statement as a result of new information, future events or otherwise, except as required under law. I'll now pass the call to Mr. Wang, I'll translate for him. Mr. Wang.

[Foreign Language] Good day, everyone. Thank you for joining our conference call today. At the beginning of the year, I outlined the group's strategic priorities and our execution plan for the year. The COVID resurgence in the first half has brought many challenges and uncertainties to the overall market environment and our execution of these goals. However, I'm pleased to see that our team still managed to deliver good results by adjusting our product and operational initiatives in a timely manner to cope with external headwinds. At the same time, we have adopted our execution plan to suit the evolving external environment. Now I'll walk you through the details. [Foreign Language] I will start with a brief overview of our financial performance. For the second quarter of 2022, total revenue at the group level was RMB 3.11 billion, down 15% year-over-year and a slight 1% decrease quarter-over-quarter. Adjusted operating income was RMB 464 million with a profit margin of 15%. Adjusted operating income was up 1% from the previous quarter, the first sequential growth since the pandemic and the market environment started to deteriorate in the second half of 2021. On an ex-Tantan basis, total revenue was RMB 2.78 billion, down 12% year-over-year or a slight 1% decrease quarter-over-quarter. The year-over-year decrease was mainly due to pressure on the live streaming business caused by the pandemic and regulatory factors. Incremental revenue brought to the VAS business by the rapidly growing new apps partially offset the decline in live streaming. Adjusted operating income on an ex-Tantan basis was RMB 583 million with a 21% margin. Tantan's total revenue for the quarter came in at RMB 331 million, down 36% year-over-year and 5% quarter-over-quarter. The year-over-year decrease was due to the demonetization process to improve user experience and retention in the second…

Thanks, Wang and Ashley. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the second quarter of 2022 was RMB 3.11 billion, down 15% year-on-year and 1% quarter-on-quarter. Non-GAAP net income attributable to the company was RMB 463.5 million compared to RMB 551.0 million from the same period of 2021 or a 16% decrease year-over-year. Looking into the key revenue line items for the quarter. Firstly, on live broadcasting. Total revenue from live broadcasting business for the second quarter 2022 was RMB 1.52 billion, down 28% year-over-year and 6% quarter-on-quarter. Core Momo's live broadcasting revenue totaled RMB 1.40 billion for the second quarter, down 26% year-on-year and 5% quarter-over-quarter. The decrease was mainly due to pressure caused by the consumption softness and regulatory changes. Tantan’s live broadcasting revenue amounted to RMB 116.4 million, down 46% from Q2 last year and 7% from the previous quarter. The decrease was due to our strategic decision to deemphasize live streaming as a supplementary experience to dating. A few months ago, we made a decision to reform Tantan’s live streaming business to lean more towards facilitating social interactions rather than the traditional show biz. Based on the data that we've seen so far, such strategy is bearing fruit. Therefore, we expect content live streaming to exit the period of decline and stabilize at the current level as we head into the second half. Revenue from value-added service reached RMB 1.54 billion, up 2% year-on-year and 4% quarter-over-quarter. Revenue from value-added service on an ex-Tantan basis reached RMB 1.32 billion in the second quarter of 2022, a 9% increase year-over-year and 5% increase sequentially. The growth in value-added service on an ex-Tantan basis was primarily driven by incremental revenue contributed by…

Just a quick reminder before we take the questions. For those who can speak Chinese, please ask your questions in Chinese first, followed by English translation by yourself. Thank you. Operator, we're ready for questions, please.

[Operator Instructions] Our first question comes from Thomas Chong from Jefferies.

[Foreign Language] My first question is on Tantan. Can management comment about the user trend in second half as well as related revenue as well as bottom line? And my second question is about the development of our new apps as well as our overseas strategies?

[Foreign Language] On the last conference call, I mentioned that Tantan's user growth depends on 2 factors. One is an internal factor, which is the enhancement of user experience and the improvement of channel efficiency driven by product efforts. And the second factor is about external reasons, namely the extent of COVID control policy and related users’ offline dating sentiment. [Foreign Language] As for internal factors, our biggest progress made after the management changes last year, was that we determined that the key in enhancing user experience and improving channel efficiency is to improve retention of female users and those without qualified photos. And we have found an initial solutions through algorithm and new product features. We will continue to make steady progress in this regard, and I have full confidence in this aspect. [Foreign Language] In terms of external factors, the continuous resurgence of COVID in various regions in China and its related control measures has brought about quite a bit of challenges. In addition, there are still many uncertainties in the overall macro environment. Consequently, we've decided to adopt a strategy to reduce marketing investment control cost and improve efficiency. Our plan is to reduce spending in low efficiency channels, while improving retention of female users and those without qualified photos as well as driving ARPU growth with the new chat room experience in order to turn Tantan channel ROI positive as soon as possible, so that we can pursue profit book growth based on a positive business cycle. And based on the current test data on the reduction of channel investment and the chat room experience, we believe we are very much likely to achieve this goal next year. [Foreign Language] I will leave it to Cathy for the financial outlook.

Okay, sure. Let me give you guys more color on the top line and also the bottom line of Tantan. Firstly, on the revenues, it seems like the zero COVID policy is going to sustain for a while. Actually, the recent few days are seeing a new round of tightening lockdowns in some of the big cities due to the resurgence in confirmed cases. And as you guys know, Tantan's users are pretty concentrated in bigger, wealthier cities in China. This is obviously going to have a negative impact on the dating sentiment and paying conversion, which would continue to pressure the marketing ROI. As Wang Li mentioned in -- earlier in his speech, under the principle to prioritize growth with profit over growth at cost, we are prepared to cut down the marketing cost in order to take care of the ROI and bottom line. As we cut low efficiency channel marketing in the second half, we should expect user count to trend down. As Wang Li said, I think around 20% from the June level, plus/minus 5% and then perhaps hit a bounce point around there. The plus/minus 5% really depends on how the COVID factor spins in the second half of the year. Subscription revenue should decrease as the user count does, probably with a time lag because of the deferrals, but it should ultimately catch up through the same magnitude of user decline. However, we do see a countering factor here for Tantan and that is that as the year progresses, we expect the ramp-up of non-subscription revenues to materialize and offset part of the decrease in subscription as a result of the cost cutting. So if you piece all these different, pretty dynamic factors together, I would say that for Tantan, revenue would trend down…

[Foreign Language] I've been pretty comprehensive about the new business in my prepared remarks. Here, I can briefly discuss Tantan's overseas development. And since we made our way into the overseas market about a year ago, we have been adopting an ROI oriented management approach and striving to achieve profitable growth, thereby overcoming the previous predicament of growth without profit or profit without growth. [Foreign Language] Our execution plan consists of 3 parts. First, the original live streaming and non-membership VAS monetization model to significantly increase ARPU and ROI in the Indonesian market. Currently, our team is working on replicating this business model in other markets. Second, adopting a strategy that focuses on reducing costs and improving efficiency, we are reducing channel investments in markets such as Japan and South Korea with a low ROI and redeploying our limited budget to regions with higher profit potentials; and third, lowering the payout ratio to increase profit level in markets with larger scale revenue. We believe that in the second half of the year, investors will see a clear growth trajectory in Tantan's overseas business on the back of a positive business cycle. I hope that answers your question, Thomas.

Operator, we're ready for the next question.

Our next question comes from Daniel Chen from JPMorgan.

[Foreign Language] This is Henry speaking on behalf of Daniel. My question is about core Momo, can management share more color on the second half revenue expectation for live streaming or VAS?

Sure. Let me take these 2 different lines 1 by 1 because they have -- I think they have very different dynamics behind them. For Momo's live streaming business, June and August have been tracking better than what we thought 3 months ago, and obviously, that has been reflected in our Q3 guidance. Originally, we thought Q3 would see a down tick from Q2. But now it looks like we can expect an upward quarter on a sequential basis for Momo live streaming. I would say that at this point, it's still too early to call that we've exited the period of uncertainties for live streaming. But based on what we're seeing on the macro and regulatory front, we have some reasons to remain cautiously optimistic about the stability of the live streaming business for the rest of the year. So that's for live streaming. For value added service on an ex-Tantan basis because we've already explained Tantan earlier. For VAS ex-Tantan, we are also trying to optimize the marketing costs so that the new applications can achieve higher quality growth, which means -- by higher quality growth I actually mean growth with higher profit margins. That means that we may also cut down marketing spend for new applications if the ROI of certain channels isn't good enough. In addition, the continuing zero COVID policy and the lingering outbreaks in different geo regions continue to weigh on the social sentiment, which could limit the growth pace of value-added services on the main application as well. Previously, I think we communicated with investors that for VAS on an ex-Tantan basis, we expect it to grow double digits on a year-over-year basis. Now due to the aforementioned factors, one being the optimization of marketing cost for the new applications and the other one being COVID lingering into Q4, we would allow that previous double-digit growth target to slow a couple of percentage points to maybe high single-digit range. But overall, I would say that value-added service continue to be a pretty healthy growth engine for Momo for the back half of the year. So that's separately for Momo live streaming and value added service. I think in the interest of time, maybe let's just take 1 more question before we call it a day. Ready for the next question, operator?

The next question comes from Leo Chiang from Deutsche Bank.

[Foreign Language] My question is regarding to core Momo margin trend in the second half. What should we expect for core Momo's gross margin and OP margin, given the ongoing cost control initiative.

Yes. I guess, if there is reviewing core Momo maybe what I'll do is just go through the cost and expenses at the company level with some more color on Momo. I think gross margin wise, as you guys can see in the numbers that we put out earlier today, we've been able to maintain a pretty stable trend during the first half of the year for the gross margin -- non-GAAP gross margin line. Now it looks like for the core Momo business Q3 should continue to be relatively stable as the content supply system remains pretty solid. Q4 could -- I don't have full visibility into Q4, but I think Q4 could dip a little bit due to the year-end promotional events. But that should be rather a one-off for the year end [indiscernible] and we do it every year in Q4. Tantan's gross margin in the second half will see some decrease from first half level as the subscription revenue trends down and revenue from non-subscription service starts ramping up. With regards to operating expenses, we've been optimizing the key line items, including marketing, personnel and infrastructures, and we'll continue to do so as we look out into Q4 and next year. I guess, the biggest cost saving in OpEx in the second half will come from Tantan as we gradually cut all of the low efficiency channels. And the other thing worth calling out here for operating expenses is that cutting marketing cost doesn't necessarily mean that we're sacrificing future growth opportunities as a -- sort of a defensive play in a tough macro environment, what we are really doing here is cutting down on the low ROI marketing plans and reallocating part of the savings to where marketing dollars could generate much higher yields. For example, we increased marketing spend quite substantially on Tietie in Q2, and we'll keep spending if retention continues to be satisfactory for this new fast-growing application. But such spending will be absorbed by cost cutting other -- by cutting down other less efficient marketing plans. So overall marketing will still see pretty significant decrease in the back half of the year. So to sum up, although at this point, it's sort of impossible to be very prescriptive about the bottom line for the second half of the year, but I think on an ex-Tantan basis, 2022 is still on track to deliver a non-GAAP operating margin north of 20%. And for Tantan due to the focus on growth with profits, we expect net loss to shrink down to less than RMB 100 million for the second half of the year. Hopefully, that answers your question.

Okay. I think this is going to be the end of the Q&A session. Thank you for joining us today, and we will see you next quarter. Ready to close. Thank you, operator.

This concludes our conference for today. Thank you for participating. You may now disconnect.