Ladies and gentlemen, thank you for standing by, and welcome to Third Quarter 2022 Hello Group Inc. Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. [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 third quarter 2022 earnings conference call. The Company's results were released earlier today and are available on the Company's IR website. On the call today are Mr. Tang Yan, 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 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 statement as a result of new information, future events or otherwise, except as required under law. I'll now pass the call to over to our CEO Mr. Tang Yan.

[Foreign Language] [Interpreted] Good day, everyone. Thank you for joining our conference call. This is my first earnings call since returning to the CEO position. I'm very happy to have the opportunity to communicate with the investor community again. In the third quarter, thanks to the product and operational enhancement, we delivered good financial results and made solid progress in our businesses. Now, I'll walk you through the details. I will start with a brief overview of our financial performance. For the first quarter of 2022, total revenue was RMB3.23 billion, down 14% year-over-year, but about 4% quarter over quarter. Revenue growth came in stronger than we expected as live streaming performed slightly better than our conservative estimate. Adjusted operating income was RMB605 million up significantly by 30% sequentially with a profit margin of 19%. This was mainly attributable to solid execution of our strategy to optimize cost and improve efficiency, delivering good progress across all business lines. On an ex-Tantan basis, total revenue was RMB2.89 billion, down 11% year-over-year, but up 4% sequentially, and adjusted operating income with RMB643 million with the margin of 22%. The year-over-year decrease in total revenue was mainly due to pressure on the live streaming business cost by the pandemic and regulatory factors. However, this decrease was partially offset by rapid growth in standalone apps. Tantan total revenue for the quarter came in at RMB341 million down 33% year-over-year, but up 3% sequentially. The year-over-year decrease was mainly due to the demonetization process we initiated in September last year to improve user experience and retention, as well as negative impact of COVID and the reduction of channel investment on Tantan's user growth and paying conversion. Adjusted net loss was significantly narrowed to RMB38.84 million from RMB119 million in the in the second quarter, mainly…

Thank you, Tang Yan 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 third quarter 2022 was RMB3.23 billion, exceeding the high end of our revenue guidance down 14% year on year but up 4% quarter over quarter. Non-GAAP net income attributable to the Company was RMB535.8 million compared to RMB571.6 million from the same period of 2021 or a 6% decrease. The year-on-year decrease on bottom-line was significantly narrowed from the previous quarters. Looking into the key revenue items for the quarter, firstly on live streaming, total revenue from live broadcasting business for the third quarter 2022 was RMB1.66 billion down 24% year-over-year, but up 9% quarter over quarter. Core Momo's live broadcasting revenue totaled RMB1.52 billion for the quarter for the third quarter down 21% year-on-year, but up 8% quarter-over-quarter. The year-over-year decrease was mainly due to the pressure cost by the COVID and the regulatory factors. The sequential growth was mainly attributable to an increase in the number of high paying users driven by product and operational efforts. Tantan's live broadcasting revenue amounted to remember a RMB139.7 million down 40% from Q3 last year, but up 20% from the previous quarter. The year-over-year decrease was mainly due to product adjustments to improve user experience in September last year as well as the negative impact of the pandemic resurgence on the channel investment reduction. In the third quarter, our efforts to reform Tantan's live streaming service to make it more geared toward facilitating social interaction started to bear fruit, which coupled with the supply side optimization, drove a meaningful sequential increase in Tantan's live streaming. Revenue from value added service was RMB1.54 billion the same as in Q3 last year and…

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. Operator, we're ready for questions, please.

[Operator Instructions] Today's first question comes from Thomas Chong from Jefferies. Please go ahead.

[Foreign Language] [Interpreted] As Tang Yan returns as CEO, should we expect there would be any changes to the group’s overall strategies?

[Foreign Language] [Interpreted] Thank you for your question. Well, I was not directly involved in the daily management of the Company over the past two years. In my role of Executive Chairman of the Board, I was closely following the overall operations and financial performance of the group. And I was involved in setting strategic priorities and in the decision making process on major issues. Therefore, our strategy will generally remain and changed, focusing on Momo, Tantan's and our new endeavors. If there is anything different between my approach to strategic execution and the past, I would say that we will step up our efforts on new products and businesses with enhanced the results allocation and execution. Let me elaborate a bit on these three aspects. First off, our Momo app, as the product with the largest user scale and the most matured commercial experience in our brand portfolio. Momo’s goal for now is to maintain a steady user base and profit contribution to the group and seek growth on top of that. And especially when we are facing uncertainties created by the pandemic and the macro environment, the most important task for Momo app is to continuously and steadily generate decent level of net profit and cash flow. This requires our team to continuously improve cost control and capital utilization efficiency while doing an excellent job in product operations. We believe that by improving product and operational efficiency, maintaining stable profits is a very achievable goal for Momo, even in the current difficult external environment. Secondly Tantan, as the second biggest the brand of the Group, in terms of connecting people for romantic purposes, we are seeing very clear growth potential for Tantan, both in China and in overseas markets. Especially in the Asian markets, we do not see…

I think that's it for the questions, maybe let's move on to the next question. Operator?

Absolutely. Our next question today comes from Leo Chiang with Deutsche Bank. Please go ahead.

[Foreign Language] [Interpreted] Thank you, management for taking my question. I have two questions about Tantan. The first question is, has Tantan may you already reached bottom? What is the strategy -- sales and marketing strategy in 2023 and how can we expect the MAU trend in 2023? My second question is. What is the revenue outlook in 2023? And what is the key majors to help reach breakeven? Thank you.

[Foreign Language] [Interpreted] Before initiating our strategy to reduce cost and improve marketing efficiency, we estimated that the reduction in Tantan’s channel investment will lead to a roughly 20% decrease in MAUs plus or minus 5%, depending on the extent of the pandemic control measures. And the decline MAUs in the third quarter exceeded our expectations as the COVID resurgence was worse than we expected in August. Based on the current situation, we expect Tantan’s MAUs to bottom out around 18 million to 19 million. Of course, the number can fluctuate because of the uncertainties around the pandemic. As for Tantan’s user trend in 2023, it depends first on how the pandemic evolves and second on our marketing strategy, and Tantan’s channel investment will be ROI oriented. And in other words, we will moderately increase marketing spend based on positive ROI. There are two factors at play here. One is the recovery of the offline social sentiment, as China relaxes it’s a COVID control policy, which should lead to improvement in user retention and paying conversion. And the other is the enhancement in product experience, which should also drive retention in ARPU growth and drive retention in ARPU growth. If any of those two factors can drive our ROI to Tantan positive or in other words to generate profit with what we spend, then we will increase marketing investment and pursue growth on top of self-sustaining positive cycle. With respect to financials, I'll leave it to Cathy.

I've heard two questions. One is how we're going to reach breakeven point and the other thing is about the revenue outlook for 2023. Maybe I'll answer the breakeven question first. As you can see, from Tantan segment reporting in Q3 by cutting down on the low efficiency channels, we've already narrowed the net loss from close to RMB120 million in Q3 to within RMB40 million in Q3. From there, I guess several things need to happen before we reach, ultimately reach breakeven point, one is that COVID has to come completely off people's mind as a deterrent that keeps young people away from dating and more generally from meeting someone that you just got to know on the internet in real life occasions. Right now, we are indeed seeing a pretty substantial relaxation on COVID containment measures as well as lockdowns. But sentiment wise, I think it's still going to take some time for the dating sentiment to fully come back. And the second is that we need to continue, as Tang Yan said, to make progress on the product side including both consumer experience as well as monetization features in order to drive retention and ARPU. These are the key operational targets for the team for the Tantan team next year. With regards to the financial outlook, I hate to say this, but as you can imagine, it's still a little bit too early to give any reliable guidance into 2023. But here are some things I can point toward, which hopefully can give you guys some color about how to think about 2023. I'll generally put them into two buckets. One is external factors and the other one is internal factors. With respect to external factors, of course, as I said, COVID is the biggest swing factor…

Next question please.

Thank you. Our next question comes from Daniel Chen at JP Morgan. Please go ahead.

[Foreign Language] [Interpreted] Okay. Thanks management for taking a question. This is Henry speaking on behalf of Daniel Chen. I have two questions. First, could you share the progress of new apps and overseas business and what's your revenue expectation for the next year? The second question is about TieTie, what is the progress of TieTie and can management share more color on marketing and monetization strategies? Thank you.

[Foreign Language] [Interpreted] We have increased our focus and investment in our overseas businesses since last year. And this is because with our product and operational experiences. We can access a larger group of users and greater revenue opportunities in overseas markets. And in terms of social products, overseas expansion, we have very obvious competitive advantage compared with standalone local apps or large platforms lacking experiences in social space. We will pursue ROI-oriented marketing strategy and explore the most suitable model for local markets one at a time, and we will not be pouring money into the market -- into marketing to pursue user growth regardless of cost. Our overseas business consists of three parts, Tantan, standalone social apps and standalone gaming apps. Revenue from our overseas business this year accounted for mid-single digit percentage of our total revenue. Revenue from the overseas business for the first three quarters increased high double-digit percentage from the same period last year and achieved a small profit. Our plan is to reinvest the profit from each product in the established market into the promotion of that product in new markets. Especially with many developing countries that share a lot of commonalities, we will try to explore opportunities across the North. Tietie delivered rapid user growth its launch after Chinese New Year this year. And we stepped up our marketing efforts to support is a strong growth momentum in the second quarter, and it now has become a social app with a sizable user scale. And the current focus of our team is to encourage users to invite more of their friends to join Tietie and increase their time spend on the app together. So we will take a relatively conservative approach to marketing investment before we achieve these two targets. As for now, we have no plans for Tietie to expand overseas, but we will not rule out this possibility when it gets into a more mature stage.

Next question please.

Thank you. And our next question comes from Raphael Chen with BOCI. Please go ahead.

[Foreign Language] [Interpreted] Thank you for taking my question. My question is regarding core Momo. I'm just wondering how to maintain the users of core Momo app with disciplines cost control strategy? And can management share and color on the revenue outlook on live streaming and VAS of core Momo next year? Thank you.

[Foreign Language] [Interpreted] As the mature brand with the history of more than a decade in the mobile internet era is not a very easy thing for Momo to maintain a stable user base. This requires joint efforts of both product and channel marketing. On the product front, we need to keep improving the social experience for existing users, and on top of that, continuously explore new social experiences to cater to the needs of new users. In terms of channel marketing, considering the pressure of the external environment on open social sentiment, we intend to tilt our limited marketing budget toed users with more obvious demand and stronger inclination to pay for our services, so as to improve the overall user application efficiency. I'll pass it over to Peng Hui for revenue outlook question.

Okay. Again, with the uncertainties on the macro front and the COVID fronts, it's hard to be very prescriptive at this point and too far into the year 2023. But here are some things that I can share with the limited visibility that we have at this point, which hopefully could help you guys build out a preliminary outlook for next year. For live streaming, as you guys can see, Q3 turn out to be better than what we originally thought, both in terms of top-line and in terms of gross profit. We were able to see both top-line growth, and a stable growth margin. However, as the macro remains quite uncertain at this point of time, at least for the coming six months, we'd rather stay on the conservative side about the revenue and profit growth outlook for live streaming. Value added service, I would say it's not completely immune from the macro uncertainty and in comparison with live streaming is actually -- more VAS is actually more susceptible to COVID and the weak social sentiment as a result of it. For Momo's value added service, if COVID lingers and takes longer for the dating sentiment to fully come back, we'll try to keep the value added service revenue line stable as we did pretty successfully for the past few quarters. It has not been an easy task because the one-on-one and some of the interest group activities are seeing pretty significant impact from the COVID. What we have been doing and will continue to do, I guess next year, is to pull the levers that we have in social entertainment experiences to make it up. For the value added service from the bucket of new applications especially [Sotia] the overseas app, the picture is much brighter. I think, this year, value added service from the new applications so far has been grown at triple-digit on a year-over-year basis. And despite the fact that it's now already at a pretty sizeable revenue size, the pace of growth is not really slowing down much from the year 2021, we do expect the value added service from the new bucket of applications to continue to grow at a pretty rapid pace in 2023. Although, at this point, it's hard to pin it down to a specific number. And the other thing was worth mentioning is that although these new applications are still at a fast growing pace -- fast growing phase, we're not just we are not nearly focused on revenue and user growth at expensive bottom-line. In Q3, as a matter of fact, we've turned that we've successfully turned all of the three new applications bottom line positive. And the goal next year is to continue to pursue profitable growth, meaning growth across all the three important lines, including users, revenues, as well as process. So, hopefully, these answers your questions about the outlook for revenue and value added service for the Momo segment next year.

I think we perhaps have time for one last question, right? So, operator, do we have any more questions on the line?

We do. We have one more question. And our final question today comes from Xueqing Zhang with CITC.

[Foreign Language] [Interpreted] Thank you management for taking my question. Related to management, as you mentioned in the prepared remarks, reducing costs and improving efficiency is a key strategy in a second half of 2022. First, can management share more on the cost conscious strategy and the overall margin change in the first quarter in 2023?

Thank you. Okay. I'm going to take this one last margin question. I hope we can end the call before markets open. The three biggest cost items that we have are. Number one is payout to the broadcasters and the performers and the moderators in the value-added service line. And the second and third is our marketing expenses and payroll. I guess I'll take them one by one. For payout, as you can see, Q3 versus Q2 this year is been largely stable. The dip in gross margin was really caused by the mix shift in between different business line items. In Q4, we do expect payout to go up a couple of percentage points due to the year-end promotional events, but that should be Q4 specific. It happens every year and will bounce back early next year when the year-end gala is gone. Overall, for next year, at this point of time, my view is that, payout is likely to remain largely stable because, A, no one that we are currently seeing out there the market is still aggressively boosting the supply side by pulling off the payout ratio. And, B, internally we do not see it as an effective strategy to grow revenues by sacrificing margins. So, that's my view on the payout. Gross margin wise it may fluctuate a little bit around the current level due to the mix shift to one way or another. Moving down to payroll and marketing. This year, we have done a pretty good job in controlling these two cost items. And this can be evidenced by the decrease in R&D and marketing expenses. I guess in Q4 because we have the year-end bonus, the double pay, et cetera, the payroll might increase a little bit. But overall, we have that overall downward trend in the payroll and marketing due to the cost optimization. We are going to continue to apply the same strategy next year and investors can expect hydro control and more focused on the cost efficiency for payroll and marketing. The other thing worth mentioning as far as cost control and the overall strategy to increase efficiency is concern is that. In terms of the allocation of resources internally, we won't treat every business line in an equal manner. What that means is that, we are going to lean more towards new businesses with higher ROI. In the second half of this year, we have been real creating engineering resources and marketing dollars from Momo to new applications. I'm happy to see that, while the overall payroll and marketing expenses went down, we did not under-invest in the new applications and they have been growing pretty well and that will continue to be the case next year. I guess, these are the answers to the margin question. And with that, I'm coming back to Ashley for the closing remark.

Well, we are very much all the time. So thank you very much for participating in today's call and we will see you next quarter.

Thank you. That does conclude our conference for today and thank you for participating. You may now disconnect your lines and have a wonderful day.