Ladies and gentlemen, thank you for standing by and welcome to Second Quarter 2023 Hello Group Inc. Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a 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.

Good morning, and good evening, everyone. Thank you for joining us today for Hello Group's second quarter 2023 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; Ms. Peng Hui, CFO of the company; and Ms. Peng Hui, CFO of the company. They will discuss the company's business operations and highlights, as well as the financials and guidance. They will 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 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 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 event, or otherwise, except as required under law. I'll now pass the call over to our CEO, Mr. Tang Yan. Mr. Tang, please.

[Foreign Language] [Interpreted] Hello, everyone. Thank you for joining our conference call. We delivered solid results in the second quarter with strong financial performance and good progress on execution of various strategic priorities. Before we go into details, I would like to introduce our COO, Ms. Zhang Sichuan, who rejoined the company last year. She will be the one who review our quarterly performance today. With that, I'll turn the call over to her.

Hello, everyone. It is my pleasure to join today's conference call. We celebrated Momo’s 12 anniversary in early August. As a founding team member it is a great pleasure to see how Momo over the past 10-plus years has grown from a single function app to a multi-brand listed company with a presence in several countries and regions. It is a great honor to return to the Hello Group family, and welcome to the next decade of the social era with old and new colleagues. Next, I will walk you through the details of the second quarter. So I will start with a brief overview of our financial performance. For the second quarter of 2023, total group revenue was RMB3.14 billion, up 1% year-over-year and 11% sequentially, exceeding our earlier guidance. In Q2, we delivered the first year-on-year growth since the beginning of the pandemic three years ago, mainly due to the stabilization and recovery of Momo’s cash cow business. Adjusted operating income was RMB709 million, a substantial increase of 53% from Q2 last year and up 37% quarter-over-quarter with a margin of 22.6%, up 8 percentage points year-over-year and 4 percentage points quarter-over-quarter. The significant year-on-year improvement in profitability was mainly due to Tantan working even. The sustainable performance of Momo cash cow business and our effective cost control initiatives and sequential improvement in profitability was mainly contributable to the increase in Momo's profit. Total revenues from the Momo app and standalone new apps was RMB2.82 billion, up 1% year-over-year and 12% sequentially, and adjusted operating income was RMB777 million, up 60% year-over-year and a significant increase of 34% quarter-over-quarter with a margin of 24%, up 3 percentage points year-over-year and 4 percentage quarter-over-quarter. We are very pleased to see that normal as our cash cow business has maintained…

Thank you, Sic. 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 2023 came in better than our previous expectation at RMB3.14 billion, up 1% year-on-year and 11% quarter-over-quarter. Non-GAAP net income attributable to the company was RMB632.1 million, up 36% year-on-year and 34% from the previous quarter. Better-than-expected bottom line performance was attributable to the outperformance of the top line, as well as our continuous cost control efforts, which led to improvement in both Momo and Tantan's profitability. We are proud that after three years of pandemic, we emerged on the other side with a very healthy and solid cash cow business and at the same time, stronger capability of managing new business endeavors to drive future growth, while delivering decent profits to the shareholders. Now let me walk you through the details. Looking into the key revenue line items for the quarter. Firstly, on live broadcasting, total revenue from live broadcasting business for the second quarter of 2023 was RMB1.59 billion, up 5% year-over-year and 11% quarter-over-quarter. Momo app live broadcasting revenue totaled RMB1.44 billion for the quarter, up 3% year-over-year and 12% quarter-over-quarter. The increase was driven by an increase in the number of high paying users, which in turn drove overall ARPPU growth. Compound live broadcasting revenue amounted to of RMB145.2 million, up 25% from Q2 last year and 4% from the previous quarter. Revenue from valued added service for the second quarter 2023 was RMB1.50 billion, down 2% from Q2 last year, but up 10% sequentially. Revenue from VAS on an ex-compound basis was RMB1.33 billion in the second quarter of 2023, up 1% year-on-year and 11% sequentially. Momo app VAS revenue decreased from the year ago, due…

Just a quick reminder before we take 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.

Thank you. [Operator Instructions] The first question today comes from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language] Thanks management for taking my question. My question is on core Momo, the first part is about the user recovery trend, as well as the outlook. And the second is regarding the macro, how it is going to impact live streaming and PAS? And the third part is about our second-half core Momo revenue expectation. Thank you.

[Foreign Language] [Interpreted] As I mentioned in my prepared remarks, the strategic priority for the Momo app this year is to keep the user base stable and increase the productivity of the cash cow business. The team's mandate is to devise and execute product and channel strategies with idea to accomplish this goal. On the product front, we integrated user products with commercial products to continue to introduce new features that facilitate timely social interactions and improve relationship building. In addition, users can further enhance the social experience by paying for value-added services. On the back end, we continue to optimize the content recommendation algorithm, so we can create a better community atmosphere and deliver more value for female users and those who are seeking for emotional companionship, an enhancement in product experience has played a positive role in improving user retention. And therefore, even with reduction in channel investment versus a year ago, the user base continue to grow steadily after the Chinese New Year trough. Although Momo's user growth and engagement level performed pretty well so far this year. We will remain our operational focus on keeping the number of paying users at a healthy and stable level rather than the excessive pursuit of MAUs because paying users on a fundamental basis will maintain the high productivity of the cash cow business. In terms of consumer sentiment, we felt that the user social and consumption demand started to pick up after the Chinese New Year for our better-than-expected user metrics and financial performance in the first-half of the year a solid evidence of this. However, since during Q3, Momo's core revenue started to soften, compared with the second quarter. And there are two reasons for this: One, is the weakening of consumer sentiment caused by the overall macro environment. And the other is that we took the initiative to make a round of relatively large round of large production adjustments in late August to further ensure a healthy ecosystem. And for the questions related to revenues, Cathy will take that.

Hey, now briefly on the revenue outlook for Momo. As you guys can see, we had a pretty good first-half of the year due to the post-COVID recovery, as well as the fact that the team has been doing a good job on the product and operational side. However, as Sic mentioned, moving -- as we move deeper into the year by monitoring the daily grossing and also from some of the anecdotal conversations with our VIPs, we can feel that the consumer sentiment is obviously weakening, possibly due to the macro, not turning out to be as promising people had hoped earlier in the year. And the other factor that we have to take into consideration is that we've been making some product adjustments on the value-added service side to make sure that Momo's social ecosystem stays healthy. And such adjustments involve temporary suspension of some of the products and services we previously offered on the Momo platform. And such suspension is expected to have partial impact on Q3 and full impact from Q4 onwards, because the adjustments and suspension took place toward late August time frame. And due to those two factors, one at the macro level and the other one on the product front, our previous view that I remember saying on our last earnings call that the second-half of the year is likely to see continuous improvement from the first-half. That view at this point of time, obviously seemed a little bit too optimistic. As you guys can see from our guidance, we are seeing Q3 to show a sequential decline by mid-single-digits. Q4 is at this point of time, still a little bit far out to see, because a lot of it will depend on how micro eventually is going to weigh out. But if the macro stays the way it is, I think it is possible that we can see a flattish quarter from in Q4 from Q3. Q4 is usually a very strong season due to the year-end competition event by the full quarter impact product adjustments that I just mentioned on the mass side could in some of the incremental revenue from the year-end competitions. Also we think it's possible that October long holiday this year could have a bigger negative impact on us because more people could be traveling due to the reopening instead of hanging out online using the social entertainment services that we offer. So again, at this point of time, I do not really have enough visibility to be very prescriptive about Q4. But if you ask our view at this point of time, we'd rather stay on the conservative side for the whole second half of the year. I hope that helps.

Yes. Operator, next questions, please.

The next question comes from Raphael Chen with BOCI Research. Please go ahead.

[Foreign Language] Thanks management for taking my question. My question is regarding our new apps. Firstly, could the management share some latest update especially [Indiscernible]? Also, could we have some insight on whether if the company had other new apps or products this year? Lastly, do we have any revenue guidance of new apps in the second-half of this year or 2024? Thank you.

[Foreign Language] [Interpreted] In terms of new endeavors, our domestic apps, which launched relatively early, have now entered a rather mature stage in terms of product and product format and user scale. And for these apps, our team's current focus is on continuously exploring monetization opportunities and optimizing the cost structure and promoting the steady growth of profit scale. And as for the overseas business with the greatest and most promising potential, as I mentioned earlier, although user and revenue growth are temporarily slowed down at the beginning of the year due to some external factors. The overseas business operational and financial metrics actually resumed a satisfactory growth trend thanks to the timely adjustment our team made in shifting market focus. While digging deeper into mature markets and exploring opportunities for revenue expansion in new markets, we also optimized the revenue sharing policy in favor of our GP margin as we build on our brand power and industry influence. And that is why if you look at social profit growth rate and went much faster than it's a revenue or growth rate level. We have recently set up an overseas business unit and has launched several new products overseas. Our goal here is to further develop existing products, while more effectively replicating our successful overseas experience in new vertical markets, but we'll start making channel investments once user matrix reach a satisfactory level. In fact, we have started trial marketing in selected regions. But our focus this year will be on optimizing products from product form according to user feedback rather than engaging in large-scale user acquisition and monetization. However, given that all of new products in the Middle East ROI-oriented app, so we have strict requirements for the financial return on financial performance of the product iteration and operations. Hopefully, these apps can make some real contribution to our top line next year. As for other new products, after Tang Yan returned to the management team, our investment in research and development of new products and businesses has greatly increased. Although the current demand in the consumer Internet industry is very saturated, we believe that each generation of young people will have different social needs and preferences. This is our challenge and also our greatest opportunity. We have been working in this field for more than 12-years, and we have accumulated a lot of successful experiences and lessons learnt. With our strong capital and talent pool, I'm confident that through self-research and investments, we will continue to consolidate our leading position in the social field and explore new growth opportunities.

Okay. Let me -- this is Kathy. Let me give you some color on the size of the revenue from the new apps. To be clear, the revenues from the new applications is currently reported within the value-added service line under Momo segments. For example, in the second quarter 2023, value-added service revenue on an ex-compound basis was 1.3 -- around RMB1.3 billion, roughly 20% of which came from the new applications. As SoulChill continues to gain momentum. This year, that 20% new piece within the value-added service line could grow I think, around 50% on a year-over-year basis. Such top line -- the other thing we're noting is the top line growth that I just mentioned also comes with margin improvement. So bottom line is growing even faster than top line. With regards to the outlook about next year, next year in, I think in late August this year is still a little bit too far to -- for me to see, a tract wise, I guess, SoulChill is going to continue to grow at a decent pace, driven mainly by new product launches and also some of the new regions that we're pushing into at this point of time. And the other growth driver -- potential growth driver for this new piece within value-added service is the new applications that we launched this year, as Sic just mentioned. Hopefully, next year, some of these new endeavors is going to start bearing fruits on the top line front. So that's my answer to revenue outlook question. So let's move on to the next question. Please, operator.

The next question comes from Xueqing Zhang from CICC. Please go ahead.

[Foreign Language] Thanks management for taking my questions. My question regards to Tanta. First could management share about the [Indiscernible] suddenly do you have some initiative on the [Indiscernible]. Lastly, what’s your outlook for Tantan’s revenue and the profitability in the second-half of this year. Thank you.

[Foreign Language] [Interpreted] Tantan has made good progress in improving channel ROI and ARPU over the past year, achieving breakeven ahead of schedule at the beginning of the year. Our next goal is to drive significant growth in ARPU and retention in order to create a positive business cycle and deliver sustainable growth. However, it's not that easy to get as it requires us to make more substantial progress in both user and commercial products. Although we haven't yet found a breakthrough point for this as the team has achieved breakeven, we have enough patience and confidence to continue exploring products and making Tantan a more effective dating app for users and creating more value to shareholders. And for the financial questions, I will leave it to Cathy.

Okay. Before I talk about the financial outlook for Tantan, maybe just one quick point to add to what Sic just said about users. I believe the big part of Tantan team's efforts for the rest of the year will be on cleaning up spammers and putting in a more comprehensive system to make sure we keep these bad actors of the platform. This is crucial for us to deliver the right kind of user experience for a dating platform. Other than that, the team is also going to be pushing harder on new product experiments, but pushing harder what I mean is probably time to pry out whatever that we believe is worth trying without worrying too much about short-term fluctuations in user count. With that in mind, it's hard for me, at this point to put down a definitive number for Tantan's MAU for the coming couple of months. I think Q3 is going to be a period where the team allows bigger room for trial and error. So I think that's the reason why we would rather defer that question on user target to next quarter. By then, we should have enough visibility to give you guys a user target for the near-term. So that's the question on the user front for Tantan. With respect to financial outlook for the back half for Tantan, I think for Q3 guidance, we are modeling in a sequential decrease from high-single-digits to low-teens. That's largely reflecting the macro impact on live streaming and to a lesser degree, the product adjustments as directed by MIIT, which I mentioned on in my prepared remarks. And that's going to have a negative impact on the renewal rate of Tantan's membership service. On the other hand, the team is also working on new features to continue to drive the ARPU, which will be able to counter some of those negative factors. So overall, we do see some downward pressure in the second-half of the year on top line, but how exactly Tantan's revenue may trend, especially as we enter into Q4 will depend on how good a job our team can deliver in driving the ARPU. With regards to Tantan's bottom line, we're still seeing opportunities to continue to optimize on important line items such as personnel and marketing. Depending on the pace of such optimization, bottom line, in the second-half should stay around breakeven level or slightly better than that. I hand back to Ashley.

[Indiscernible] Operator?

[Technical Difficulty] Please go ahead.

[Foreign Language] Thanks management for taking my questions. My question is about profit margins. On the gross profit side, the real room for reducing live streaming revenue share. On the OP side, is there a potential further narrowing OpEx? Lastly, could you give us an idea of the productive scale of the investment for the new app and overseas business expansion? Thank you.

Yes. I'm hearing several pieces of the question. Firstly, on gross margin and overall payout structure I think on the prior earnings calls, we've said that currently, we're seeing the supply side of the live streaming ecosystem at a pretty stable state, meaning that, yes there is still competition for the high-quality performers. But overall, we think market is much more stable, compared to a year ago or two years ago, where some of the bigger platforms were very aggressive in competing with us for high-quality performers. So with that in mind, I think right now, the overall payout structure that we offer on Momo platform should stay relatively stable, meaning that the payout ratio should also stay at a relatively stable level as well. I think the question if I get it correctly, is asking about whether there is room to maybe lower the payout ratio to the broadcasters. Although we do not see competition as intense as it was like two years ago, I do not think it’s appropriate to lower the payout to agencies or broadcasters, either because it's true that from the press, sometimes we hear stories about some broadcasters making a lot of money. There are such outliers like some of the top of the pyramid streamers making huge sum of money. But these are not the average, these are the outliers. If you look at the average level of income that broadcasters make. If you look at the margins of some of our -- even some of our costs performer agencies, it's very low. So if you want them to work hard in the ecosystem, if you want them to earn enough money to care about improving the content. This is probably not the right time for us to lower the payout ratio either.…

So I think that's it for today. And thank you guys for participating, and we'll see you next quarter.

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may now disconnect.