Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2025 Hello Group Inc. Earnings Conference Call. Followed by the number one on your telephone keypad. 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, Alfreda. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's first quarter 2025 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, CEO 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. We 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. 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 US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under law. I'll now pass the call over to our COO, Ms. Johnson Trent. Miss Johnson?

Hello, everyone. Thank you for joining our call. Q1 was a solid quarter and a good start to 2025. Next, I will review our strategic priorities for the years and provide updates on execution. Before getting into the financials, investors who have reviewed our Q1 earnings will notice that we have disclosed geographical breakdowns on revenue levels. Over the past few years, with the rapid development of overseas businesses, their revenue contribution to the group is getting increasingly prominent. In Q1, overseas revenue accounted for 16% of total revenue, up from less than 10% in Q1 2024. We expect this percentage to continue growing rapidly in the coming quarters. We believe that the geographical revenue breakdown helps investors better track our progress in our overseas development. Next, let's dive into the details of Q1. Starting with an overview of financial performance, for Q1 2025, total group revenue was RMB2.52 billion, exceeding the high end of our guidance and was slightly down 1.5% year over year. Domestic revenue reached RMB2.11 billion, down 9% year over year. Overseas revenue reached RMB415 million, with accelerated year over year growth of 72%. Adjusted operating income was RMB350 million, down 33% from Q1 last year, with a margin of 14%, down six percentage points from the same period last year. On the last earnings call, I outlined several key priorities for 2025. For Momo, our goal is to maintain the productivity of this catch-up business with a healthy social ecosystem. For Tantan, our goal is to improve its core dating experience and do an efficient business model that drives profitable growth. As for the new endeavors, our goal is to continue deepening our presence in overseas markets, enriching our brand portfolio, and building a long-term growth engine. Since the beginning of the year, we have…

Thanks, Vic. Hello, everyone. Thank you for joining our conference call today. Before getting into the financials, let me first outline the adjustments we've made to our disclosure practice starting this quarter. Number one, we've introduced a geographic breakdown of revenues to more accurately reflect the rapidly growing and increasingly significant overseas business. Number two, given that the line between live streaming and value-added services is becoming increasingly blurred and these two are really in subsidence all fee-based revenues where we directly charge the users for value-added services and in many cases, in turn, share part of the revenues with content providers we've merged the two business lines into one. Which we now refer to as value-added services. Number three, given that Tantan's revenue accounts for less than 10% of the group's total revenue, we've discontinued its segment recording. Now let me take you through the financial review. Total revenue for the first quarter 2025 was RMB2.52 billion, down 2% year on year and 4% quarter on quarter, exceeding the high end of our revenue guidance. Non-GAAP net income attributable to the company was RMB403.8 million compared to RMB59.9 million for the same period last year and RMB230.5 million from Q4 2024. In the first and last quarter of 2024, we had some one-off tax and impairment-related expenses excluding these special items. Net income for Q1 2024 and Q4 2024 would have been RMB508.5 million and RMB371.1 million respectively. Looking into the key revenue items for Q1, our total revenue from value-added services the sum of revenues from former live streaming and VAS, but combined as salary added service from this quarter was RMB2.49 billion, down 2% year on year and 4% quarter on quarter. On a user geography basis, VAST PRC mainland revenue was RMB2.08 billion, down 9% year…

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

If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Zhuking Zeng with CICC.

Thanks management for taking my question and congratulations on the strong quarter and the remarkable growth of overseas business. My question is about social. On the first quarter earnings call, the management mentioned that Sohrab achieved the AR a 52% revenue growth in 2024. I mentioned just now that's supposed to year on year growth in Q1 last one for Q percentage. Apart from high base, are there any other reasons causing a slowdown in revenue? Such as market competition, consumption, and other such? What does the management think about the revenue signing for social? And what's the cost of guidance before the search? Thank you.

Indeed. Last year, Sogou achieved revenue growth by strengthening localized operations, expanding into new markets, and introducing video features. However, since the beginning of this year, the revenue growth has slowed down a little bit. This can be attributed not only to a high base effect, but also the political unrest in the Middle East at the end of last year, which dampened some users' consumption sentiment. A trend that continued into Q1 of this year. To mitigate the impact of the event-driven revenue pressure, we beefed up our efforts to acquire paying users through various channels and introduced new features designed to facilitate relationship building and improve user engagement. Enhancement in user experience has positively impacted retention. Additionally, during Ramadan, we organized several operational events resulting in more stable use of fluctuation compared to previous years. This helped in the rapid recovery of user activities and spending after Ramadan. As for the competition concerns just mentioned, although the Middle East hosts a rich variety of social entertainment products, the market remains highly fragmented. That's why we haven't experienced significant competitive pressure. Our resilience can also be attributed to our extensive experience in product development and operations within this sector. Last year, Sogou's revenue was close to RMB1 billion, and we believe it still has greater growth potential. However, to achieve this goal, we need to go beyond Sogou's current market penetration and product offering. This is precisely why we must continue to expand into new markets, deepen our presence in existing regions, and drive continuous product innovation. In terms of profit, SoTL has maintained solid earnings in recent years. However, during this phase of rapid revenue growth and ongoing efforts to enhance market penetration, we will not prioritize margin expansion. Instead, we will maintain strict control over channel ROI as long as our user appreciation remains profitable. We will reinvest the incremental profit into user acquisition channels and strengthen localized operations. I hope that answers your question. Operator, please take the next one.

Thank you. Your next question comes from Ria Jiang with Deutsche Bank.

Thank you. Let me translate myself. Thank you management for taking my question. My question is also regarding the overseas business. In Q1, overseas revenue was over RMB100 million. And So Cho was close to maybe RMB300 million. Does that mean that the other two apps that started to monetize me last year has combined. Is this they stayed a remaining RMB100 million in quarterly revenue. Could management share the growth plan of these two products and your estimation of overseas revenue this year? Thank you.

From a revenue perspective, Sohu is currently our largest and most successful overseas product. Our other two social entertainment products targeting the Middle East also achieved significant breakthrough progress at the end of last year and the beginning of this year. This was mainly driven by improved user retention and channel marketing efficiency, which leads to significant improvement in user acquisition ROI. We believe that both products are well positioned for rapid scaling and are expected to maintain strong growth momentum from the Q1 levels. In addition to these three social entertainment products, our overseas revenue also includes Tantan's overseas business. Tantan has always been a mainstream brand among overseas Chinese communities and Southeast Asian markets. As Sig mentioned, we established a strong overseas product operation team in Singapore last year, tasked with managing international dating products including Tantan. We have always been very bullish on the prospects of dating products in overseas markets, particularly in developed regions. Hello Group hosts unique competitive advantages in this sector and the dating market will be a key focus in our international expansion strategy. Overall speaking, we are very satisfied with the overall performance of our overseas business. Undoubtedly, the proportion of revenue and profit from overseas operations will continue to increase, and it will soon become a true growth engine for the group. As for our revenue expectations for overseas market this year, Cassie can provide more details.

Let me take the more quantitative question on the overseas revenue outlook. This is the first quarter where we've broken out overseas versus domestic revenue, and I think it's an important milestone in understanding our global growth trajectory. I'm gonna perhaps address this question from several perspectives. Firstly, if you look at where the overseas revenue comes from, in Q1 2025, overseas revenue accounted for 16% of total revenue. Within this overseas piece, SOCIAL remains the largest contributor making up approximately from 60% to 70% of our overseas revenue in Q1. The second largest contributor is the overseas piece of Tantan, which is primarily a subscription-based dating product. That piece contributed around 10% of the overseas revenue. Beyond these two, we also have several emerging brands such as Yohan, Amar, and others that make up the remaining share. Together, this portfolio approach under the Hello Group umbrella has driven robust growth internationally. In terms of growth dynamics in different sectors, we see two major forces behind the over 70% year over year overseas revenue growth. First of all, the social entertainment market in the Middle East and North Africa, which we call MENA, area, has been a major opportunity. While there are some more established players in the region, the market is large and diverse enough to support multiple platforms. Our entry to MENA market through brands such as Socho, Yahala, and Amar has been informed by years of product iteration and operational learning. Over the past few years, we've developed a playbook from launching all the way to scaling that we can replicate across different brands in that region. This matters because MENA when you think about MENA, it isn't a single uniform market. It actually spans multiple countries, demographics, and user behaviors. For example, what works in the…

Hi, operator. Please go ahead with the next question.

Your next question comes from Thomas Chong with Jefferies.

Thanks management for taking my question. We actually have a Momo and Tantan undergoing a lump of changes in 2024. How should we think about the 2025 outlook, and how should we think about the China revenue for this year? Thank you.

For mature brands like Momo and Tantan, our goal is to maintain the productivity of this catch-up business with a healthy social ecosystem. However, for social brands that have been around for over a decade, maintaining fundamental social metrics is no easy feat. So our product team has put considerable efforts into using new technologies to enhance users' social experience. For example, as Shik mentioned earlier, we provide male users with our self-developed AI tools to analyze the historical post of female users and generate personalized greeting messages. This is a very practical social tool for Asian males who are not very adept at initiating conversations. If the male users feel that the content and phrases are generated by AI do not match their personality and their style of expression, they can request the AI to continuously adjust the greeting messages until they are satisfied. We have now replicated this technology in Tantan, allowing more users who are eager to find dates but lack certain skills to benefit from it. Since the beginning of the year, enhancement in product operations and matching algorithm have driven year-on-year and sequential growth in several key metrics of the Momo social ecosystem. This includes retention rates, two-way chats, the number of two-way chats, and female ratio. All of which reflect increased user engagement. A stable and highly engaged user base forms the cornerstone that allows our cash cow business to sustain its profit. Regarding Tantan, we implemented further cost efficiency measures in both channel investment and personnel expenses in Q1. The ROI improvement brought by reduced marketing spend has far exceeded our expectations, creating greater operational flexibility for continuous product experience optimization. As for this year's domestic revenue performance, I will leave Cassie to address those details.

Okay. In Q1, Mainland China's revenue declined by high single digit on a year over year basis. For Q2, we are guiding to a YOY decline in the low teens percentage. Looking at the full year, we expect the decline rate to remain roughly in line with the first half, which translates to a 10% plus minus year over year decrease for the full year for the domestic piece. This represents a significant narrowing from the high teens year over year decrease that we saw in 2024 versus 2023, which shows continuous stabilization of the domestic business. Now let me briefly review the primary factors that drive our domestic business trajectory, so you guys can put our estimation into perspective and maybe form your own view about how things may play out in the second half of 2025. Firstly, macro sentiment remains a swing factor. Momo's revenue is heavily tied to value-added services, particularly virtual gifting, which depends on discretionary entertainment spending of higher-income users. Spending sentiment among this group is closely linked to their personal financial outlook, and that in turn tracks with macroeconomic indicators. A lot of times, how the equity market is performing. In Q1, what we saw was a short-term boost around Chinese New Year supported by some optimism in the equity markets. However, as we enter into Q2, macroeconomic and geopolitical uncertainties such as tariffs began to resurface. But for now, sentiment appears stable, and our Q2 guidance reflects that. That said, the outlook for the second half will depend still depend heavily on broader macro developments. The second big factor here is the regulatory environment. On that front, we've seen meaningful improvement in the regulatory landscape over the past few quarters. With that stability, we've shifted from a defensive risk management posture back to…

Yes. Your next question comes from Jenny Wang with UBS.

So let me translate myself. So thanks, management, for taking my question. First of all, congrats on the strong first quarter results. My question is on the margin side. So can you guys do the whole year and your outlook earlier? Could you please also give us some color in terms of our profit outlook for the year? And how since it's expected to be managed and allocated into the rest of the year. Thank you.

Sure. I guess that's my job. Let me take the margin and bottom line question. Maybe I'll break it down into a few key components. First of all, if you look at gross margin, our Q1 non-GAAP gross margin came in at approximately 38%, reflecting a losing more than three percentage point decline year over year from Q1 2024. The biggest driver towards such margin decline was the mix shift toward an increasingly bigger overseas revenue contribution. Gross margins are lower for overseas business primarily because a, payment channel costs are higher, and b, many overseas applications are still in the early stage of scaling. Where efficiency hasn't kicked in yet. As the overseas business continues to grow as a percentage of total revenue, we expect to see similar level of YOY decline for the whole year 2025. Meaning, in 2024, we reported a 39% non-GAAP gross margin for the full year. For 2025, we anticipate a decline of a couple of percentage points putting us in the range between 36% to 37%. Over the longer term, though, as overseas application scale and payout ratios decline, we expect gross margin improvement and leverage gains. Turning to operating expenses. First of all, R&D and G&A expenses. With continued personnel optimization, both R&D and G&A expenses are expected to decrease slightly in absolute dollar terms in 2025 versus 2024. With regards to sales and marketing, we anticipate around 10% year over year increase in social marketing spend. This increase is driven by our rapid expansion in overseas markets where we are acquiring new users and growing market share. It's important to note that all marketing investments are ROI driven. That means we only increase spend when data gives us confidence in cost recovery over time. So if you try to put all these together and think about adjusted operating margin for the whole year, again, in 2024, our non-GAAP operating margin was I think, somewhere around 16% for 2025. We expect the margin in the low teens percentage likely within the 13% to 14% range as we absorb the near-term gross margin pressure as well as ramp up the marketing investments in overseas market. So that's my answer to the bottom line. Back to Ashley to wrap up the call.

I think that's it for today. Thank you for joining us. See you next quarter.

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