Ladies and gentlemen, thank you for standing by, and welcome to Fourth Quarter and Fiscal Year 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 conference 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 fourth quarter and fiscal 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 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 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.

Hello, everyone. Thank you for joining our call. 2022 was an extremely challenging year for many Chinese companies. So COVID resurgence brought a lot of uncertainties to the overall business environment. However, I'm pleased to see that our team was due to external pressures by timely adjusting strategic priorities and corresponding execution plans in the second half of the year with flexible product and operational measures. Despite the challenges, we delivered solid financial results for shareholders, enabling us to conclude the year on a satisfactory note. Our first to review the main operating and business results in the fourth quarter and fiscal year 2022 and then our outline our strategic priorities for fiscal 2023. I will start with a brief overview of our financial performance. For the fourth quarter of 2022, total revenue was RMB3.21 billion down 13% year-over-year, and 1% quarter-over-quarter. Adjusted operating income was RMB499 million with a margin of 16%. Total revenue for a Momo app and standalone new app was RMB2.87 billion, down 11% year-over-year, a 1% quarter-over-quarter and adjusted operating income was RMB514 million, down 21% year-over-year and 20% quarter-over-quarter. With a margin of 18%, total revenue from Tantan came in as RMB347 million, down 21% year-over-year, but up 2% quarter-over-quarter. Adjusted operating loss was significantly narrowed to RMB15.17 million from RMB114 million in the same quarter of last year. On a sequential basis, adjusted operating loss continued to narrow further despite an increase in the year-end seasonal expenses. I'm pleased with the progress that Tantan made improving cost efficiency in the second half of the year. For fiscal year 2022, total revenue was RMB12.3 billion compared with RMB14.6 billion in 2021. Adjusted operating income was RMB2.03 billion with a margin of 16% compared with RMB2.59 billion in 2021. The decrease in total revenue and…

Hello everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the fourth quarter 2022 was RMB3.21 billion down 13% year-on-year and less than 1% quarter-on-quarter. Non-GAAP net income attributable to the Company was RMB487.9 million excluding the impact of accrued income tax expenses on the undistributed earnings, which were not on a comparable basis for the two periods. Non-GAAP net income in the fourth quarter of 2022 was up 8% from the year ago period, despite the top line decrease as a result of our cost control efforts. Looking into the key revenue line items for the quarter, firstly, a live broadcasting, total revenue from live broadcasting business for the fourth quarter of 2022 was RMB1.72 billion down 20% year-on-year but up 4% quarter-over-quarter. Momo apps live forecasting revenue totaled RMB1.56 billion for the quarter, down 20% year-on-year, but up 3% quarter-over-quarter. The year-over-year decrease was due to the pressure caused by the COVID and regulatory factors. The sequential growth was mainly attributable to the incremental revenue generated by the year-end competition event. Tantan's live broadcasting revenue amounted to RMB152.9 million, down 19% from Q4 last year, but up 7% from the previous quarter. The year-over-year decrease was mainly due to the negative impact of the pandemic and reduced channel investment, resulting in a significant decrease in the paying user count. The sequential increase was driven by ARPU growth thanks to our product and operational efforts. Revenue from value-added service for the fourth quarter of 2022 was RMB1.45 billion, down 2% from Q4 last year and 6% sequentially. Revenue from value-added service on an ex-Tantan basis reached RMB1.27 billion in the fourth quarter of 2020 a 2% increase year-on-year, but down 5% sequentially. The year-over-year growth was…

Thanks. Just a quick reminder before we take the questions, please ask your questions in Chinese and followed by English translation by yourself. Operator, we're ready for questions. Thank you.

[Operator Instructions] Our first question today comes from Leo Chiang with Deutsche Bank. Please go ahead.

Thank you management for taking my question. My question is regarding to the Momo app. As the offline activities resume normalization, can management sure the latest user and revenue recovery trend of the Momo app? Additionally what is the target of Momo's revenue in 2023?

Let me translate first. So, as I mentioned earlier, the opening in early December severely affected our user base in a short period of time resulting in a sharp sequential decline and the use in Q4. In early January after the infection rate reached its peak in many regions, mainly in the northern part of China, as local users started to gradually come back as the pandemic subsided. However, the recovery trend was interrupted by the traditional low seasonality of Chinese New Year. When people started to return to their hometown in January to get ready for the holiday celebration, DAU rebounded rapidly in early February after the Chinese New Year trough and the growth rate was actually significantly higher than that in early January and it was also better than our previous expectations. And currently Momo user base has rebounded to the same level as the end of summer holiday last year. In terms of operation strategy, Momo app will remain focused on the ecosystem and product experience. We will continue to take a conservative approach in terms of event operation and competition arrangements. That means, we will prioritize stabilizing profit over driving non-profitable revenue growth. And I'll leave it to Cathy for financial details.

Sure. Let me briefly share what we can say at this point about that good old question. For Q1, as you can see from our guidance, Momo's live streaming is going to see mid- to high-teens decrease from last year. The biggest reason here is that, last quarter was -- last Q1 was relatively a high base because if you remember correctly, it was before the regulatory changes in May -- regulatory changes that happened in May 2022 that sort of made a prior Q1 sort of top-on for us. On top of that, I suspect that not having full visibility into the macro conditions for the rest of the year is still weighing on the mind of some of our high paying users, at least that the general sentiment that we are getting from talking to a portion of our top standards. We will see if the sentiment gets better overtime as the year progresses and we are stimulating policies get released. So that's Q1. Looking out to Q2 onwards, we are definitely going to see quarter-over-quarter increase as both traffic and the whole economy continues to recover from the past three years of COVID restrictions. Plus, it looks like that the fluid regulatory situation that have been hanging over the sector over the past two to three years is also going to see some stabilization from -- for the coming few quarters. The only uncertainty is, I would say, is the -- is how strong the macro gets, as we move deeper into the year because that's really going to determine the spending sentiment of the top of the pyramid users for live streaming. For value-added service, Q1 this year is also a bit tough due to the January trough related to China's reopen infection search. Another factor here was related to SoulChill which was heavily impacted in Q1 due to the Turkey earthquake as well as heavy depreciation of the Egyptian pound against U.S. dollar. Some of our payment channels actually, some of our payment channels in Egypt, was actually suspended by local authorities due to that reason. We are currently shifting the both in marketing dollars as well as some of the other resources to other Gulf countries, where the growth momentum remains quite strong. Overall, we expect value-added service to continue to grow this year, with second half being substantially stronger than first half due to the aforementioned several factors. So if you put all these different pieces together, I guess for the ex-Tantan part, we're going to probably see continued quarter-over-quarter improvement throughout this year driven by the gradual recovery as well as the strong momentum that's coming from the smaller new apps. How fast the top-line a ramp up throughout the year is really going to, as I said, heavily depends on the macro conditions. So I hope that sort of answers your question.

The next question comes from Thomas Chong with Jefferies. Please go ahead.

Thanks management for taking my question. My question is about Tantan. Can management share about the latest user trends as well as the outlook for 2023 revenue and profitability? On the other hand in terms of the revenue scale, can management share about the chat room in 2023?

Can I use the base showed a similar trends to Momo. Falling sharply during the surge of the infection and voting out after the Chinese New Year. And currently, the DAU has rebounded to the same level as November last year whether or not we can continue to grow from that and at what pace and he depends on if we can see continuous improvement in product experience and user retention, as well as our ability to introduce new payment features that can effectively improve channel ROI. I don't think the pursue of user growth at the expenses of profits like in the past a year or two is still a viable model. So whatever we need is revenue growth that can generate profits. We will resume channel investment to accelerate user growth, if there is a significant improvement in ROI and investors put into it to be a bit patient with us on this round. So in terms of revenue growth, revenue growth is likely to come early and faster than user growth, and because both Black Gold membership and the chat room experience actually build on well established the monetization models, and both features play a positive role in enhancing user experience and retention. So, therefore, even if user scale remains at the current level, we will continue to grow sequentially from Q1. And as for chat room experience, we will focus on refining its products and operations for now. And so, we don't expect the chat room to bring large amount of revenue this year, but however, we have full confidence in the monetization model and revenue potential of the term experience. I will let Cathy talk about the bottom line.

Okay, about Tantan's bottom line, well, if you look at the trajectory of the non-GAAP operating loss in 2022, you can see that we've been consistently narrowing down the offering loss quarter-over-quarter throughout the year. In Q4, non-GAAP operating loss was already at RMB15 million kind of run rate. We expect that narrowing trend, overall narrowing trend to continue into this year into 2023, which means that we should be looking at a positive bottom line for Tantan toward back half of the year, if not earlier this year. The other thing worth calling out here is that as Tantan, as Tang Yan mentioned, as long as marketing ROI remains positive, we won't focus too much on growing the bottom line margins at this point for Tantan because there are still a great deal of growth opportunities for the new products in the China market. Instead, we could let part of the profit flow back into marketing to drive sustainable user growth as well as top line growth. That's what we meant by you know getting into a positive cycle, which is the most important strategic priority for Tantan this year.

The next question is from Xueqing Zhang with CICC. Please go ahead.

Thanks management for taking my questions. My question is about standalone new applications. Should management share more color on these strategies and revenue expectations of new apps this year? Thanks.

In 2022, ROI oriented new product turned profitable with revenues up nearly 150% from 2021. And our goal for this app this year is to further scale up revenue and profit. For the domestic apps, which are at a more mature stage, the user base is relatively stable at the moment. So, we will continue to expand profits by driving ARPPU and margins. And for the overseas apps, which are facing a much broader market space, our goal is to expand new revenue markets on top of deepening the existing territory. Turkish and Egyptian markets may be affected to some extent this year. But overall, we see strong revenue and profit growth opportunities for social apps in the mainland market. We will continue to make efforts in this direction. In addition to the ROI oriented products that focus on revenue and profit, we will continue to invest and explore opportunities in DAU oriented products. And in fact, in addition to this year, we have several DAU oriented products in the pipeline currently in beta. We will share more information with the investor community as we accumulate our more data.

Yes. We have one more from Henry So with JPMorgan. Please go ahead.

Thanks management for taking our question. My question is about margin. As you mentioned in the prepared remarks, optimizing costs will continue to be a key for this year. Could management share more color on the cost control strategy and the overall margin trend this year? Thanks.

Sure, sure. Yes, that's for me. For gross profit margin, the biggest driving force here is the payout ratio. I remember someone asked that question last quarter as well. Actually, probably every quarter, we all face this good old question. My answer remains pretty consistent with what I said at that time last quarter, which is that, the supply side factors are at this moment pretty stable. That means payout is going to remain largely stable as well, of course, different business of ours there are different margin profiles. So, revenue mix is always going to be another variable in the equation you should consider, when modeling out the GP margin. So that's the GP margin line. Moving down that line, last year, we did a pretty good job in optimizing the key operating expenses items such as personnel expenses, marketing costs as well as infrastructure spending. We just finished the annual budgeting cycle and it seems that, we still have some room to further improve the efficiency across all those spending areas. So we expect the operating expenses to further shrink down on a pretty -- in a pretty meaningful way this year. And with top-line trend improving, as the year progresses, both bottom-line and bottom-line margins are going to improve as well. So, just, I'm trying to sort of put things into a nutshell, if you look at the top-line and the OpExtrends that I mentioned earlier, and try to think about how the math overall math works to this year. There are probably two key takeaways. One is that top-line wise 2023 is going to see continuous quarter-over-quarter improvement driven by the overall COVID recovery as well as the strong growth momentum coming from the smaller new applications. And the second takeaway is that we're going to continue to optimize our costs and expenses. So bottom-line is going to see pretty meaningful growth on a year-over-year basis, especially in the second half of the year. So that's basically the overall financial picture that I can lay out at this point. I have visibility to layout at this point. For other stuff, I guess we'll have to wait and see as the year progresses. I guess, for the interest of time, that's going to be the last question that we take. I'll hand back to Ashley for closing remarks.

Thank you everyone for participating our call and we'll see you next quarter. Have a good night and good morning. Bye.

That does conclude our conference for today. Thank you for participating. You may now disconnect.