Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2024 Hello Group Incorporated 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.

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's first quarter 2024 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. Zhang Sichuan, COO 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 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 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 events or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Zhang Sichuan. Ms. Zhang, please.

Hello, everyone. Thank you for joining our call. Since the beginning of the year, we have made steady progress in implementing our strategic priorities across all business lines. I will now walk you through the details. I will start with a brief overview of our financial performance. For the first quarter of 2024, total group revenue was RMB2.56 billion, down 9% year-over-year and 17% sequentially, slightly exceeding the high end of our revenue guidance. Adjusted operating income was RMB515 million, a slight decrease of 0.5% year-over-year and down 22% sequentially. Profit margin was 20.1%, up 1.8 percentage point year-over-year, but down 2 percentage point sequentially. The year-over-year margin improvement, despite lower revenue, was primarily due to our continued efforts to improve cost efficiency across our business lines, offsetting the revenue decline impact. Specifically, we drove continued efficiency improvement in personnel and cash utilization by reducing inefficient channel investments and optimizing stock allocation. As a result, costs declined more than revenue, and the cost optimization initiatives drove margin improvement. The sequential decline in margin was primarily due to negative operating leverage, resulting from the seasonal decline in revenue. Total revenue from the Momo app and standalone new app was RMB2.32 billion, down 8% year-over-year, mainly due to the declines in revenue from the Momo app, resulting from spending softness amidst the weak market economy and our proactive product and operational adjustments to maintain a healthy community ecosystem. Standalone new apps, especially overseas, continued to grow rapidly year-over-year. Adjusted operating income was RMB487 million, down 3% year-over-year, with a margin of 21%, up 1 percentage points from a year ago. For Tantan, total revenues decreased 22% year-over-year to RMB241 million, mainly due to the reduced number of paying users. Our commercial product team continues to optimize the paying experience to improve ARPPU,…

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 first quarter 2024 was RMB2.56 billion, down 9% year-on-year and 15% quarter-on-quarter. Non-GAAP net income attributable to the company was RMB59.9 million compared to RMB471.9 million for the same period of 2023. In the first quarter, we accrued a withholding income tax of RMB448.6 million associated with our historical undistributed earnings generated by our WFOE. I will elaborate a bit later on such accounting treatment. This tax expense item is on accrual basis, meaning that it did not result in an actual cash outflow in that amount during the current quarter. In addition, it was one-off in nature and did not reflect the fundamental performance of the current quarter, nor is it indicative of future profit prospects. Excluding this special item, non-GAAP net income for the quarter would have been RMB508.5 million, up 8% from the same period -- from the same quarter last year, but slightly down 1% sequentially. I'm glad to see that net income attributed -- net income continue to grow on a year-over-year basis despite lower revenue. This was mainly attributable to our effective cost optimization and efficiency improvement initiatives. Now, let me walk you through the details. Looking into the key revenue items for the quarter. Firstly, on live broadcasting, total revenue from live broadcasting business for the first quarter of 2024 was RMB1.24 billion, down 13% year-over-year and 19% quarter-over-quarter. The year-over-year decrease was mainly due to three factors. Number one, our proactive product and operational adjustments to deemphasize revenue-oriented competition events for the sake of maintaining a healthy ecosystem. Number two, soft consumer sentiment amid the weak macro economy. Number three, content strategically pivoting away from…

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

Thank you. [Operator Instructions] Your first question comes from Xueqing Zhang with CICC. Please go ahead.

[Foreign Language] Thank you management for taking my question. My question is about Momo. Considering adjustment to macro environment, regulation and [other risks] (ph), what's your strategy for VAS in the future? Also, you mentioned in the prepared remarks, Momo reduced the competition events. Does it improve the revenue-sharing ratio of live streaming and VAS? And lastly, how to view the revenue and profit of the core Momo in 2024? Thank you.

[Foreign Language] [Interpreted] Okay. Given the uncertainties in the macro environment in the end of last year, our team proactively reduced the revenue-oriented competition events in the live streaming and audio and video based VAS experiences in order to protect user experience and limit the unhealthy monetization approaches adopted by broadcasters and agencies to obtain more revenue from competition events. The year-over-year revenue changes in the past two quarters reflected the impact of this operational adjustments on the Momo app revenue. And since the beginning of the year, our team has introduced a new interactive gamified features and fostered the supply of high-quality content and leveraged Momo's strong social attribute to drive organic revenue growth, partially offsetting the decrease in competition events related revenue. I'm very pleased with the team's ability to flexibly respond to changes in the external environment and make a smooth transition from competition events driven to non-event-focused operations. This year, we plan to further pursue this strategy of fully leveraging Momo's core value proposition and develop more immersive interactive unified features in the audio and video based experiences and explore incremental revenue opportunities. [Foreign Language] [Interpreted] In terms of revenue sharing, our basic revenue sharing policy has remained stable over the past few years. Due to the reduction in competition events in the past six months, we have saved some bonus costs. However, the decrease in revenue caused by these operational adjustments has resulted in lower income for broadcasters and lower profits for agencies. As a result, we believe that it makes strategic sense to use a portion of the saved bonuses to increase the revenue sharing for non-event operations and to enhance agency engagement and motivation through moderate profit concession. And consequently, our overall revenue sharing ratio will remain basically stable compared to the previous period. And as for our revenue and profit guidance, I'll leave it to Cathy.

Okay. Before talking about the revenue outlook, I would like to remind the analysts and investors that the Momo segment revenue actually includes both the revenues from the core Momo application and the revenues from the new applications, including Social, Hertz and Duidui, et cetera. That's something you may want to bear in mind when taking our comments into your modeling. Now, on the core Momo application, as in the past few quarters, future revenue trajectory will continue to hinge upon the development on two major fronts. One is macro and the other one is regulatory environment. For macro, which in turn dictates the consumer sentiment, we're seeing some positive policy changes at the top. However, how effectively and quickly those policy changes will get filtered down into the consumer behavior in general and more specifically into user spending on our platform, that, at this point, it's -- I think it's still too early to tell. We'll see as the year progresses. So that's for macro. On the regulatory front, as investors can see, we have always been very disciplined and prudent in terms of managing risks and making sure our ecosystem is healthy and safe in the regulatory regard. In Q1, we undertook very important adjustments to the operational policy, as described by Sic and Tang in their remarks. The impact on the ecosystem is positive and the financial impact so far are pretty in-line with our earlier expectations, as communicated in last quarter's call. So, that's the core business. The overseas piece will, obviously, continue to grow pretty robustly and thus help mitigate the decrease from the core. Overall, if you look at our Q2 guidance at midpoint, I think we are seeing 13% decrease on a year-over-year basis in Momo segment. That YoY decrease is higher than…

Operator, next question, please?

Thank you. Your next question comes from Raphael Chen with BOCI Research. Please go ahead.

[Foreign Language] I will translate myself. Thank you for taking my question. I want to follow-up on overseas business. Could management share the basic strategy? Any updates on operational metrics or the localization progress? And lastly, could we have any quantitative outlook regarding the total revenue and the profit of our overseas business this year? Thank you.

[Foreign Language] [Interpreted] I think Sic has covered this topic quite comprehensive in her prepared remarks earlier. At the beginning of the year, our business in the Middle East temporarily slowed down sequentially due to the restrictions on entertainment activities during Ramadan. But year-over-year, it remained a rapid growth momentum. This was mainly because we have attached a great strategic importance to the overseas business in recent years and we have provided strong support to our overseas teams in terms of talent and capital allocation over the past years. On the last earnings call, I outlined three directions for overseas business growth localization, new features and new regions. [Foreign Language] [Interpreted] In terms of localization, we have set up an office in the Middle East and this enables us to connect with and select local high-quality partners in a more efficient manner, therefore reducing communication and management costs. And in terms of products, we have engaged with high-paying users from different language and cultural backgrounds, and optimized the product design and adjusted our practice based on user feedback and thereby improving user experience and boosting overall consumer sentiment. In addition to upgrading the existing voice-based gamified play, we also ramped up testing of live streaming by increasing its penetration. In terms of new market expansion, we have begun to gradually increase investment in richer countries in the Gulf region and we expect our products and operations in the Middle East to improve significantly this year compared to last year and laying a solid foundation for continued growth in this region. As for financial related matters, I will leave it to Cathy.

Okay. For revenue outlook for the overseas piece, in Q1, Soulchill grew I think over 60% year-over-year. Moving deeper into the year, the YoY growth may slow down a little bit due to the higher comp last year. If we can move faster in implementing our product and operational strategies, the slowdown could be mitigated to a large extent. If some of the growth initiatives takes time to bear fruit, then the slowdown could be more evident. We'll get more clarity as we head into the second half. Profit wise, there is still going to be pretty impressive YoY growth. But as we are still seeing many growth opportunities in the region, we'll try to strike a balance between profit growth and investment in the future -- investment for the future. Back to Ashley.

Operator, in the interest of time, let's take our one last question. Thank you.

Thank you. Your last question is from Henry Sun with JPMorgan. Please go ahead. Henry Sun, your line is now live. Please proceed with your question.

[Foreign Language]

Hello, Henry. Yes, we can hear you.

[Foreign Language] [Interpreted] I'll translate myself. Thanks, management, for taking my question. I have a few questions about Tantan. Management mentioned in the prepared remarks an improvement in Tantan's acquisition efficiency. Does that mean we should expect an increase in marketing spend moving forward? And how much are we planning to invest in a brand marketing initiative? Does the change in strategy suggest that user numbers have bottomed out? And lastly, could management share your perspective on the user trends as well as the revenue and profit outlook this year? Thanks.

[Foreign Language] [Interpreted] Our continuous cost reduction and efficiency improvement strategies over the past two years have effectively brought Tantan to stable profitability. However, the continued reduction in channel investment has also put significant pressure on Tantan's user base. And we see that Tantan's users and revenue have not stabilized and given the new user ARPU has improved significantly over the past year leading to an improvement in new user ROI, we plan to moderately increase our channel investment in the second quarter while maintaining the current ROI in order to stabilize the user base. In addition, we haven't invested in Tantan's brand marketing since 2019, which is one of the key reasons for the continuous decline in organic new users in the recent years. Therefore, based on our successful test in March, we plan to adopt more offline marketing strategies to raise brand awareness, improve brand image and user trust to drive download conversions and organic user growth. [Foreign Language] [Interpreted] In terms of monetization, and Sic just mentioned that we are working on an upgraded version of Tantan. The new UI design will guide users to enrich their personal information and encourage users to spend more time learning about a candidate before deciding to swipe left or right. We had much debate internally about this design change because it involves changing a long-standing user behavior based on which many of our premium features are built. Thus such change in UI will likely to have a negative impact on monetization. However, we eventually concluded that this is the right course of action for long-term improvement in user experience and was a sacrifice in short-term monetization. Of course, our commercial product team will continue to optimize paying experience to improve new user ARPU to partially offset the negative impact of regulatory changes on membership renewal policy and product upgrade. And as for the financial part, I will leave that to Cathy, please.

Sure. I think there are several questions here. On the marketing spend, although the ARPU of Tantan has significantly improved during the past year, we have not reached the tipping point where the return on investment is high enough to drive a positive business cycle yet. That means, if we pull the marketing spend too high, we could flip back to loss. So, the plan for the coming couple of quarters is to moderately increase the marketing spend. By moderately, I mean, ballpark probably between RMB10 million to RMB20 million incrementally per quarter. And most of that incremental spending will go into KOL marketing. At the same time, we will carefully monitor the ROI to make sure we get good return for the marketing investment. The goal for the Tantan team this year -- here I'm answering the question about the user plan. The goal for Tantan team this year is to keep the user base stable through effective marketing campaigns as well as product innovations to deliver better dating experiences. Whether we will be able to reach that target will depend on how efficient our product and marketing teams are. Revenue wise, we are likely still going to see a downtick as live streaming continue to shrink, but there is quite limited impact on profit because gross margin for live streaming is very, very low for Tantan's live broadcasting business. However, as we are investing part of the profit back to brand marketing, the bottom-line will -- the bottom-line this year will likely decrease from last year's level. So, hopefully, that addresses your question. Ashley? I'll pass to Ashley for closing.

Thank you. And actually that's it for today. And thank you for participating, and we'll see you guys next quarter. Thank you, operator. We're ready to close.

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