Hello Group Inc.

ladies and gentlemen thank you for standing by and welcome to the second 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 if you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad 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 second quarter 2024 earnings conference call. The company's results were released earlier today and available on the company's IR website. On the call today, we have Mr. Tang Yan, CEO of the company, Ms. Jiang Sichun, 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. 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 Security 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 statements 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. I will now work you through the progress we make in the second quarter against our strategic priorities across all businesses. I will start with a brief overview of our financial performance. For the second quarter of 2024, total group revenue was 2.69 billion RMB, down 14% year-over-year, but up 5% sequentially. Adjusted operating income was 477 million RMB, down 33% year-over-year, and 7% sequentially. Profit margin was 17.7%, down 4.9 percentage points year-over-year, and 2.4 percentage points sequentially. In terms of business statements, total revenue from the Momo app and San Antonio app was 2.46 billion RMB, down 30% year-over-year, but up 6% sequentially. The year-over-year decline was mainly due to the decline in revenue from the normal app resulting from spending softness amid the weak macroeconomy and our proactive product and operational adjustments to maintain a healthy community ecosystem since the end of last year. The sequential increase was due to seasonality. In Quarter 2, Standalone new apps maintain their growth momentum on both year-on-year and sequential basis. Driven by our overseas business, adjusted operating income from the Momo app and Standalone new app was 456 million RMB, down 33% year-over-year and 6% sequentially, mainly due to the revenue decline. Adjusted operating margin was 18.5%, down 5.5 percentage point year-over-year and 2.4 percentage point sequentially. For Tantan, total revenue for the quarter was 234 million RMB, down 27% year-over-year and 3% sequentially, mainly due to the decreased number of paying users. Adjusted operating income was 20.6 million RMB compared with 31.9 million RMB a year ago and 28.8 million RMB a quarter ago, representing a margin of 8.8%, down 1.1 percentage point year-over-year and 3.1 percentage point sequentially. Now I will walk you through the programs that have mixed against our strategic priorities for Momo, Tam Tam, and new endeavors since the beginning of the year. Our main goal for the Momo Act this year is to maintain the productivity of the cash cow business with a healthy social ecosystem. Tam Tam's goal is to continue improving the court dating experience and view an efficient business model that drives profitable growth. As for our new endeavors, our goal is to further enrich the brand portfolio, push the business boundaries beyond normal and and view a long-term growth engine. I will now walk you through the details of our execution. First, on the product and operational front of the Momo app. In the second quarter, our product team focused on optimizing the community ecosystem, improving the female user experience, and increasing the volume of effective social interactions. To improve the experience of female users receiving green teams, our product team applied AI technology to help male users to generate greeting faces, which increased the success rate of ice-breaking chats and led to the growth of two-way chats. In terms of algorithm strategy, we increased the matching rate of active female users to improve the experience for users with unmatched social needs. Our optimization of product and recommendation strategy plays a positive role in increasing both the number of matches and the number of 2A chats. In addition, for the finding partners, or 找大子, a pilot program for our online to offline interest group, which has been running for a year, in the second quarter, we focused on expanding the coverage of our young user base to improve MOMO's social brand perception. Our efforts to further improve and make breakthroughs in products and algorithms based on brand tone, wipe, and user preferences are an important foundation for normal cash cow business to maintain sustainable productivity. On the channel front, our user acquisition team continues to implement ROI-oriented strategies and work with our commercial product team to recommend interactive features to users from channels that match their spending capabilities to improve paying conversion. In order to increase the proportion of female users, we adjusted our advertising materials and channel strategies to focus on female users and work with our product team to specific recommend interactive female-friendly features to improve their onboarding experience on our platform. After several years of optimizing channel strategies, the room to further reduce unit access is relatively limited. Accordingly, we have been working with KOLs to leverage new channels to bring in incremental traffic, thereby increasing brand exposure with a limited budget and controlling user acquisition costs within a reasonable range. In the second quarter, the mobile app had 7.2 million paying users, an increase of 100,000 driven by the return of long-term vast users after the quarter one low seasonality. Now, let's talk about the productivity of our Momo Cash Cow business. In the second quarter, Momo's live streaming revenue was 1.22 billion RMB, down 50% year-over-year, but up 6% sequentially. The year-over-year decline was mainly due to our strategy to proactively reduce revenue-oriented large-scale competition events in order to maintain a healthy social ecosystem and spending softness amidst the macroeconomy. On the sequential basis, revenue increased after the seasonal low, but the growth rate was lower than the previous years. This was mainly due to the adjustment to our event operating policy, which resulted in lower profits for agencies and broadcasters which in turn caused them to be less motivated. To address this issue, we have moderately increased the incentives for non-event operations, and the revenue sharing ratio has increased slightly quarter over quarter. Our product team also introduced specific interactive features for users at different levels. Increasing daily revenue and reducing reliance on event revenue. Moreover, we have introduced props such as privilege, functions, and host costumes in live streaming showrooms, which do not require revenue sharing. This not only enriches the variety of features and keeps users engaged, but it also plays a positive role in improving the profit level of live streaming. In quarter two, revenue from web-added services, excluding time-to-time, totaled 1.21 billion RMB, down to 9% year-over-year, but up 5% sequentially. Last revenue from the Momo app was 850 million RMB, down 20% year-over-year, but up 5% sequentially. Revenue from Revenue from the standalone apps was 355 million RMB, up 36% year-over-year and 4% sequentially. The year-over-year declines in vast revenue from the normal app was mainly due to our proactive product and operational adjustments to mitigate the regulatory risk, which put pressure on a number normal RAS paying user and app people. Additionally, microfactors also weighted on consumer sentiment. The sequential growth was mainly due to seasonality. On the product operational front, we launched new gifting features in the audio and video based commercial channels to help broadcasters effectively interactive with medium and long tail users. We also tested interactive light games such as Xiao Xiao Le and new categories such as Love Fortune Telling in our chatroom features, which have the largest user base. Our data shows that the pay conversion of the new features was higher than the one existing features. Turning to Tantan, Let me first talk about its user trends and financial performance. Although our cost reduction and efficiency improvement strategy implemented over the past three years has effectively driven Timeline to profitability, the continued reduction in channel investments has put significant pressure on Timeline's user base. Meanwhile, the lack of investments in branding over the years has led to a continuous decline in organic users. At the same time, we haven't been able to find an effective product level solution that can significantly improve user retention. The combination of the both mentioned factors has resulted in Tantan's MAU decreasing by 6% sequentially to 12.9 million in June. As of end of the second quarter, Tantan had 1 million paying users, down to 100,000 sequentially. The main reasons were the decline in MAU. The short-term negative impact on new users on new paying user conversions from the UI upgrades and the regulatory-related redesign of the new Renewal page. Coming to TimeTimes Financial, total revenue for the quarter was 234 million RMB, down 27% year-over-year and 3% sequentially. mainly due to the reduction in the number of paying users. Overall, our people were flat year over year, among which the IP pool of the live streaming business increased significantly as a result of our strategy to to emphasize life training, which has a lower correlation with the dating experience. While our people saw a significant year-on-year increase thanks to our efforts to promote relatively high-priced products, such as Black Gold, SVIP membership, and additional pay-as-you-go privilege for members. enabling the sustainability of the overall IP pool. In terms of business line, last revenue was 140 million RMB, down 80% year-over-year and 4% sequentially, while last year's revenue was 83 million RMB, down 43% year-over-year and 5% sequentially. Now, I would like to walk you through the efforts we make on TomTom products and user acquisition funds and the challenges we face. First, on the marketing and user acquisition funds. To address the issues of weak brand awareness among young users and the significant decline in organic users due to the Metacritz brand commotion, we conducted branding events during the quarter in cooperation with offline venues such as bars and clubs in metropolitan cities with a high density of young people. We also leverage new media channels for online promotion to increase awareness of TangTang among young people and overall brand popularity. We believe that compared with user acquisition through channels, Driving user growth by improving brand awareness is a relatively long-term initiative that can take time to bear reasonably. But over time, it plays a positive role in the continuous and stable growth of our organic users. especially as Tan Tan has gradually refocused on the court's dating experience by de-emphasizing the community-oriented and entertainment-oriented experience in recent quarters. This is important for us to strengthen young people's awareness of Tan Tan's value for dating through long-term brand investments and product improvements. Therefore, continuous increasing the opportunities for brand exposure with a controllable range of marketing investments will be a long-term direction for our branding strategy in the future. On the user acquisition front, factors such as the e-commerce festival in June led to fierce channel competition. resulting in a sequential increase in unit acquisition costs, which combined with the pressure on the new user output from the UI upgrade led to a sequential decrease in channel ROI. To address this, our user acquisition and membership product teams worked together to recommend a relatively high-end membership product to high-value users from channels. which help increase the user output. Now, let me give you an update on the progress Tantan has made on product and operational sites. In the second quarter, we worked on an upgraded version to improve the dating experience for users. Preliminary user interviews and surveys reviewed two major pain points in user experience. Uncertainty about authenticity of picture profiles and users' identity. And second, lack of response to chats after matches. Since the issue of spamming has been effectively controlled since the beginning of the year, users' feedback in authentic experience stem primarily from issues such as incomplete profile information, lack of real person authentication, and photos that look too good to be true. The first phase of our redesign in Q2 focused on guiding users to complete their profile information and encouraging them to spend more time learning about potential matching before swiping. Early data shows that users with a richer profile content has significantly higher post-match conversation rates than those just profile pictures and basic information. However, this improvement in matching experience and different head interactions conflicted with our existing business model, which relied largely on users' quick swiping decisions based solely on looking at profile pictures. The negative impact of this redesign on new user paying conversion was one of the reasons for the sequential decline in Tantan's number of paying users. Nevertheless, we believe that making short-term commercial sacrifices to improve long-term user experience is a critical foundation for Tantan to ultimately achieve the strategic goals of profitable growth We should monetize product features that improve user experience and add value to them rather than do so at the expense of user experience, which can only get us into a downward cycle. During the ongoing product upgrades and optimization, our commercial product team will continue to optimize paying experience to increase new user output. which should potentially offset the negative impact on revenue caused by the product upgrade. Lastly, in terms of our new endeavors, in the second quarter, total revenue of the new app reached 365 million RMB, up 36% year-over-year and 4% sequentially, mainly driven by our overseas business With a stable channel ROI, we moderately increase channel investments, driving steady growth in MAU and paying users. On the product and operational front, our team has been accelerating the localization process of overseas business since the beginning of the year. After strengthening the localization research on virtual gifts and props, Our commercial product team introduced hot sales gifts that better match local user preferences. Meanwhile, our local operation teams refined our services for high-paying users and standardized supply-side collaborations and KPIs. This combined effort led to a significant increase in number of top-tier paying users. which in turn drove the app people growth. The simultaneous increase in paying users and app people has laid a solid foundation for sustainable and stable growth in our overseas business. Regarding our expansion in the MENA region, we are focusing on two key tasks. regional expansion and extending our offering from more days to live streaming. These initiatives are taking longer than we anticipated at the beginning of the year as we realized that both efforts required a highly localized service team as a prerequisite. We do not know enough in the past couple of years in terms of localization. and we are now accelerating our efforts to make up the shortcomings. Overall, we remain confident in our growth potential in the MENA region. Compared to six months ago, we now have a clear understanding of what we must do to continue to grow, and we will continue to invest in this region. This concludes my remarks. Now, let me pass the call over to Kathy for the financial review. Kathy, please.

Thank you, Sik. 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 2024 was 2.69 billion RMB, down 14% young year, but up 5% quarter over quarter. Non-GAAP net income attributable to the company was 449.2 million RMB, compared to 632.1 million RMB for the same period of 2023, and 59.9 million from the last quarter. In Q1, we had a one-off non-cash tax provision. Excluding this non-cash tax item, non-GAAP net income would have been 508.5 million RMB for last quarter. Looking into the key revenue items for the quarter, firstly, On live broadcasting, total revenue from live broadcasting business for the second quarter of 2024 was 1.30 billion RMB, down 18% year-over-year, but up 5% quarter-over-quarter. The year-over-year decrease was largely attributable to a decline in the core Momoa live streaming business, and to a lesser degree, the decrease in Tantan. The sequential growth was driven by the core Momo live streaming service. In terms of segments, Momo app live broadcasting revenue totaled 1.22 billion RMB for the quarter, down 15% year-over-year, but up 6% quarter-over-quarter. The year-over-year decrease was due to our proactive product and operational adjustments to de-emphasize revenue-oriented competition events and weak consumer sentiment. The sequential growth was due to a rebound after negative seasonality. Compound's live broadcasting revenue amounted to 83.0 million renminbi, down 43% year-over-year and 5% quarter-over-quarter. The decrease was due to our strategic decision to pivot away from the less state-centric service. Revenue from the value-added services for the second quarter of 2024 was 1.35 billion RMB, down 10% from Q2 last year, but up 4% sequentially. The YOY decrease was due to a decline in both Momo and Tantan. However, the growth of standalone new apps partially offset the downward revenue pressure. Value-added service revenue grew sequentially, driven by the recovery from Momo VAS and continued growth of new applications. Revenue from VATS on an external basis was 1.21 billion RMB in the second quarter of 2024, down 9% from Q2 last year, but up 5% from the previous quarter. MomoApp's value-added service revenue decreased from Q2 last year due to our proactive product adjustments to manage regulatory risks, as well as a weak standing sentiment. and the sequential revenue growth was driven by seasonal recovery. Revenue from the standalone new apps continued to grow both on a year-on-year and quarter-over-quarter basis, driven by the steady improvement of the overseas business. TomTom's value-added service revenue amounted to remain be $139.9 million, down 18% year-over-year and 4% sequentially. The decrease was due to a decline in paying users which was in turn due to a reduction in channel investments, the UI upgrade, and the adjustments to subscription renewal policy. Now turning to cost and expenses. Non-GAAP cost of revenue for the second quarter of 2024 was 1.59 billion RMB compared to 1.82 billion for the same period last year. Non-GAAP gross margin for the quarter was 40.8%, down 1.3 percentage point from the year-ago period. The year-over-year decrease was primarily due to a number of different factors. Number one, higher payout ratio in our oversea endeavors as we expand into new regions and try to launch new video service. as well as the change in revenue mix toward higher payout businesses. Number two, deleverage where direct personnel and infrastructure costs take up a higher percentage of revenues. Number three, payment channel costs represent a higher percentage of revenues as revenue mix shifts toward overseas business. The payout ratio of the core MOMA app remains stable with a slight downward trend due to the reduction in event-related bonuses. Non-GAAP R&D expenses for the second quarter was 179.9 million RMB compared to 200.8 million RMB for the same period last year or an 11% decrease year-over-year. The decrease was due to the continuous optimization in personnel and infrastructure costs. Non-GAAP R&D expenses as a percentage of revenue was 7% compared with 6% from the year-ago period. We ended the quarter with 1,364 total employees, of which 282 are from Tantan, compared to 1,470 total employees, of which 339 from Tantan a year ago. The R&D personnel as a percentage of total employee for the group was 62% compared with 63% due to last year. Non-GAAP sales and marketing expenses for the second quarter was 360.6 million RMB or 16% of total revenue compared to 349.7 million RMB or 11% of total revenue for the same period last year. The year-over-year increase in absolute RMB amount was mainly due to an offline gala for MoMA live streaming service, which in 2023 was held in Q1. Non-GAAP G&A expenses was 89.5 million RMB for the second quarter of 2024, compared to 83.2 million RMB for the same period last year, both representing a 3% of total revenue. Non-GAAP operating income was 476.5 million RMB, a decrease of 33% from Q2 2023, down 7% from the previous quarter. Non-GAAP operating margin for the quarter was 17.7%, down 4.9 percentage points from the same period last year and 2.4 percentage points from the previous quarter. Non-GAAP OPACs as a percentage of total revenue was 23%, an increase from 20% from Q2 2023 and up from 22% in Q1 this year. Now briefly on income tax expenses. Total income tax expense was 102.6 million renminbi for the quarter, with an effective tax rate of 19%. In Q2, the company accrued withholding income tax of 17.3 million renminbi, which is 5% of undistributed profit generated by our Wofi. Without the withholding tax, our estimated non-GAAP effective tax rate was around 16% in the second quarter. Now turning to balance sheet and cash flow items. As of June 30, 2024, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments, and restricted cash totaled 14.32 billion RMB compared to 13.48 billion RMB as of December 31, 2023. In Q2, we paid an equivalent of 716 million RMB cash dividends to our shareholders. In the current quarter, we bought back 395 million RMB or 54 million U.S. dollar worth of shares in the open market. Net cash provided by operating activities in the second quarter of 2024 was 475.2 million RMB. Lastly, on business outlook, we estimated our third quarter revenue to come in the range from 2.58 billion RMB to 2.68 billion RMB, representing a decrease of 15.2% to 11.9% year-over-year, or a decrease of 4.1% to 0.4% quarter-over-quarter. At segment level for Q3 2024, on a sequential basis, we expect normal revenue to decrease mid to low single digit. On the time-to-time side, we expect revenue to decrease high single digit. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to changes. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Sue King Zhang with CICC. Please go ahead.

Thank you, Yicheng Wang. This is my question. My question is about MoMo. Considering the current macroeconomic policy environment, how do we view the income and profit period of MoMo's main business? And what is the product strategy for the next few years? Finally, I would like to ask if we look at 2025, Thank you very much for taking my question. My question is about Kuo Mo Mo. Considering the current micro and the regulation environment, how to view the revenue and the profit of the half of the year? And what's your strategy for live streaming and live streaming in the next few years? Lastly, does MoMo have a chance to achieve top-line growth in 2025? Thank you.

Let me answer that. At the end of last year, we adjusted the operation strategy of live streaming and WAX audio and video scenarios, weakening the income as a guide for the competitive activities. In the past few seasons, the lack of competitive flow indeed caused a certain negative impact on the income of MoMo. But live streaming and WAX teams, through the introduction of some new daily interactive play methods, have made up for the lack of flow. For example, as Sik mentioned in his speech just now, selling personalized special items, adding emotional stamps and other new products to the WAAS chat room, have all played an active role in increasing pay and conversion. Overall, the adjustment of the operation strategy is basically in line with our expectations due to the influence caused by the flow of water. The benefit level is even better than our expectations for the first half of the year. Therefore, we decided to continue the operation strategy of ecological adjustment in the second half of the year, which will further weaken the scene and play style led by the union, especially all kinds of competitive event activities. Then the product will rely on the silent social attribute for different levels of paid users to launch richer interactive play. This will sacrifice some short-term economic interests, but we think it will be for the long-term stability and healthy development of cash flow business to win a good ecological environment. As for whether income can be achieved in 25 years, it mainly depends on the changes in the macroeconomic and supervision. The conclusion is still too early. Then the income and profit situation in the second half of the year, please let Tracy introduce it to you.

Okay, let me translate first. At the end of last year, we adjusted our operating strategy for live streaming and audio and video-based value-added service experiences to reduce revenue-oriented competition events. The decline in competition events of related revenue in the past few quarters has indeed had a negative impact on the Core Mobile App revenue. But our live streaming and VaaS team managed to partially offset the revenue decline by introducing new interactive gimmicky features. For example, as Six just mentioned, we have introduced personalized costume props in the live streaming showrooms and also added new categories such as love fortune telling in our value added service chatroom experience. which have played a positive role in improving pay-in conversion. Overall, the impact of the operating strategy adjustment on Walmart revenue is pretty much in line with our expectations. And the impact on the profit side is actually indeed better than our expectations for the first half of the year. Therefore, we have decided to continue the operational adjustments to the ecosystem in the second half. and further de-emphasize agency-dominated experiences and features, particularly various competition events. On the product front, we will leverage Momo's social attributes to introduce richer, interactive, gamified features for paying users at different levels. Although this will cost some short-term financial sacrifice, we believe it will create a positive ecosystem for the stable and healthy development of the cash cow business in the long run. As for whether our revenue can grow in 2025, it depends mainly on macroeconomic and regulatory changes. It's a bit too early to tell now. As for the revenue and profit guidance for the second half, I will leave that to Cassie. Cassie, please.

OK. On the financial outlook of the cash cow business, for top line, last quarter we said Q2 would be a good basis to think about the back half of the year. What that means is that if you take the 18% year-over-year decrease in MoMA application live streaming and value added service in Q2, you can apply that same weight for the back half of the year as well. Originally, we thought that second half might be a little bit better because the YOY comparison could get a little bit easier as we entered into the back half of the year. However, since the cash cow over, actually over delivered on the bottom line for the first half, We decided that we should use this opportunity to continue our operational adjustments to push the ecosystem more toward social entertainment rather than competition-driven events. That decision could dip the revenue slightly for the second half of 24, but overall the cash cow is on track to deliver the annual profit target we internally set for it at the beginning of the year. So that's how to think about the cash cow. Other than the cow, within MOMOA segment, we also have the new applications, mainly the oversee ads. This piece will continue the robust YOY growth momentum. So that could partially offset the YOY decrease from the cow. I think for the whole year for the MOMOA segment revenues, we will likely to fall into the 10 to maybe 12 percent range in terms of YY decrease. With regards to 2025, as Tang Yan said, it's still too early to tell, but the two biggest determining factors here are still going to be macro and regulatory environment. Profit-wise, our view remains pretty much the same as last quarter. We're still well on track to hit the same adjusted operating margin of high PINs for the year. Also internally, we are actually trying to deliver the same annual profit target in absolute dollar amount. We do have the flexibility and our also prepared to control the spending more tightly if top line is under a little bit of a pressure down the road. On the other hand, if things turn out to be more positive on the revenue front, we will perhaps invest a little bit more for the future. In other words, we are trying to manage the cost against the top line so we can deliver the annual profit target we set for ourselves at the beginning of the year. Those are the colors I can give at this point on the outlook for both top line and bottom line. Other than that, I don't want to pin ourselves down too much by promising a bottom line number at this time of the year. So hopefully that helps. Back to Ashley for the next question, please.

Hi, Alperita. Ready for the next question, please. Thank you. Your next question comes from Jenny Yuan with UBS. Please go ahead.

Thank you for your question. I'm from UBS, Jenny. First of all, congratulations to the company for its very strong performance. My question is about overseas business. We see that the income contribution from New Apps is very good. Can you share with us the recent development of overseas business? So I will trust in myself. Thanks for taking my question and congrats on the results. My question is regarding our overseas business. With the good revenue growth momentum in the new apps, could the management update us with overseas progress so far? And do you have any financial outlook or guidance for this year that you can share with us? Thank you.

As we mentioned before, we believe that the development of overseas business is mainly based on three main lines. The first is to strengthen localization. The second is to extend the gameplay from audio to video. The third is to expand the market of overseas rich countries and other countries in the Middle East. Just now, SIX mentioned in his speech that since the beginning of the year,

As I mentioned before, we believe that the growth in our overseas business depends on three main factors. Number one, strengthen localized operations. Number two, expand product offering from VoIP-based to live streaming services. And number three, expand our businesses in wealthy GCC region and other countries in the Middle East. As Sig just mentioned, we have accelerated the localization process since the beginning of the year, and in the first half, we have made some good progress in feature design, refined services offering for high-paying users, and supply-side collaboration.

This is certainly far not enough for a group company that pursues a global expansion.

We need to continue to expand our overseas personnel pool, strengthen localized operations, and improve our cross-border personnel management practices. Improving the international awareness of our team will help us more deeply understand and better meet the social preferences and needs of users from different cultural backgrounds.

In the first half of the year, the speed of the live broadcast is slightly lower than expected. This is mainly due to the fact that the product operation needs a longer time to solve the problem of localization and union cooperation. In recent years, members of the product and technical team of the Beijing headquarters have visited the many key markets of SOCIO, and together with local teams, they have sorted out the user feedback, optimized products, and technical solutions. The growth of overseas teams will promote localization, product design, and UI short-term upgrade, increase live broadcast testing, The rollout of the live streaming experience in the first half was slightly slower than our expectations at the beginning of the year.

This is mainly because it took longer to resolve localization and agency cooperation issues on the product and operational front. Recently, key members of our product and tech team at the Beijing headquarters visited several key social markets and worked with local teams to sort out user feedback and optimize the product and technical solutions. And the growth of the overseas team has laid a solid foundation for upgrading localized virtual gift design and user interface, and speeding up testing of live streaming features to enrich gamified experiences, and deepening our exploration in GCC countries and Turkish markets. After this round of visits and joint work with the overseas team, We are more convinced of the revenue growth opportunity in the Middle East market and the strategy of achieving growth through enhanced localization. As for the financial part, I will leave that to Cassie. Cassie, please.

Sure.

As Diane mentioned, now it looks like we need to spend some time beefing up our local operations before we could pursue larger scale revenue growth in the broader MENA area. We've been lagging behind on that front in comparison with some of our, I mean, we've been lagging behind on localization front in comparison with some of our peers who were early into the Middle East markets. For example, the senior management paid our first visit to our major markets in MENA only last month. It was not until then did we realize that there is still some basic level of the infrastructures we need to put in place in order to take the revenue to the next level. So I guess we are going to spend the second half of the year playing some catch-up in those areas. The good news is that after the trip, we are even more convinced that there are still a lot of growth opportunities in MENA, so revenue will continue to grow. But before we go full force into, for example, live shooting service, the wildlife growth will likely to slow down a little bit from Q1 level as we spend time laying the groundwork for strong localization. In Q2, the overseas peas achieved 40-something percent year-over-year growth. It could further slow to maybe mid-30s in the back half before our initiatives in Gulf countries and the live streaming start bearing fruits. So that's the color that I can give in terms of financial outlook for the overseas business.

Okay. Operator, next question, please. Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

Thanks, management, for taking my question. My question is about Tan Tan. Just in the prepared remarks, management talks about The revamp of Tantan is still in progress. Can management talk about the current situation and our ultimate goal, as well as how our revenue and profitability will be impacted by this revamp? Thank you.

Over the past two years, Tantan has achieved good results in reducing capital control, improving channel efficiency, and promoting RP pool growth. and achieved a profit of six consecutive seasons. However, the current user size has not yet been completely stable. The impact of the number of users has also shown a slow downward trend. We believe that the fundamental reason for this situation is that the core dating experience has not achieved a real breakthrough. The product level needs to make bolder attempts to find products that can significantly improve the flow of products to drive the growth of quality.

Penta has achieved good results over the past two years in terms of reducing channel investment, improving channel efficiency, and driving our people's growth, resulting in six consecutive quarters of profit. However, its user base has not yet stabilized, and revenues have also shown a slow downward trend due to the impact of user scale. And we believe The fundamental reason for this is that Tantan has not made significant breakthroughs in the co-auditing experience. And we need to be bolder at the product level to find product solutions that can significantly improve retention and drive organic user growth.

In this new version, we aim to fully return to the user experience, adjust the interface, and optimize the user guidance strategy. For example, to enhance the authenticity of the user, we will use the user experience to encourage users to upload real pictures and text messages, and to guide users to complete the real-person certification in the chat section after matching. Another prominent problem is that in order to improve our DAO algorithm, we will try to take care of some male users who do not easily get matching opportunities. The consequence of doing this is that a small number of high-quality women have received excessive exposure opportunities, resulting in a large number of matching opportunities that cannot be converted into chat interaction.

In this round of version upgrade, we aim to fully return to the user experience by adjusting the interface and optimize the user guidance strategy. For example, to enhance a sense of authenticity of users, We will encourage them to upload real pictures and text information by issuing trial membership benefits and guide users to complete real person authentication in the chat session after matching. And another prominent issue is that in order to improve DAU, our algorithm tries to take care of the experience of some male users who don't easily get matching opportunities. As a result, a small number of high-quality female users got excessive exposure, resulting in a large number of matches that could not be converted into chat interactions. Therefore, our algorithm team will make it easier for women to make up their minds by reducing low-quality matches, thereby improving chat conversions.

In order to encourage product manufacturers to make more attempts, the management did not want the team to be convinced by the short-term numbers during the revision testing period. Therefore, we will allow user size and income to have certain fluctuations in the short term. We think this is a long-term correct choice for the product. I am very happy to see that the team is sticking to the spirit of seeking new and changing in the challenging environment. The new revision of MoMo, the new revision of Tantan, not only shows the movement of our change of user needs, but also shows our

To encourage more exploration on the product side, management does not want the team to be constrained by short-term operational and financial targets during the pilot phase of the upgrade. Therefore, we are allowing some fluctuations in user scale and revenue in the short term. We believe this is the right decision for Tantan in the long run. I am very pleased to see that the team is maintaining the spirit of innovation and adoption in a challenging environment. The redesign of TanTan demonstrates not only our insight into evolving user needs, but also our strong commitment to improving user experience. As for the financial part, I will leave that to Cassie.

Okay, for TanTan, I guess there are three things worth calling out on the financial side. One is what Sik and Tangyan pointed toward in their comments. After a long period of trial and error, we figured that the only way out for TanPan is to not worry about short-term KPI numbers and do whatever we believe is the right thing to do in order to give the users the best dating experience. So for the coming six months or so, we are going to allow the Tantan team to put financial targets aside and set top priority on the dating experience. While I do not have full clarity at this point on where the revenue would land for the rest of the year, I guess Q2's YY decrease could be a good reference point to project the back half of 2024. The second point I'd like to call out here is while Tantan is still not ROI positive in terms of user acquisition, we believe we need to keep the marketing spend at the Q2 level for the coming couple of quarters so that the scale of Tantan will be maintained. And the third thing I would like to mention here, is that if you put the first thing and the second thing I mentioned just now together and try to think about the bottom line for Tantan, I think the profit will likely to decrease from the first half of the year. But for the whole year 2024, our view is that Tantan is still going to be profitable. So that's Tantan's financial outlook. Now I'm handing back to Ashley to make the call.

I think, yeah, this is the perfect timing. So thank you for participating and we'll see you next quarter.

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

Thank you.

Ladies and gentlemen, thank you for standing by and welcome to the second 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. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. 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 second quarter 2024 earnings conference call. The company's results were released earlier today and available on the company's IR website. On the call today, we have Mr. Tang Yan, CEO of the company, Ms. Jiang 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. 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 Security 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 statements 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. I will now work you through the progress we make in the second quarter against our strategic priorities across all businesses. I will start with a brief overview of our financial performance. For the second quarter of 2024, total group revenue was 2.69 billion RMB, down 14% year-over-year, but up 5% sequentially. Adjusted operating income was 477 million RMB, down 33% year-over-year, and 7% sequentially. Profit margin was 17.7%, down 4.9 percentage points year-over-year, and 2.4 percentage points sequentially. In terms of business statements, total revenue from the Momo app and San Antonio app was 2.46 billion RMB, down 30% year-over-year, but up 6% sequentially. The year-over-year decline was mainly due to the decline in revenue from the normal app resulting from spending softness amidst a weak macroeconomy and our proactive product and operational adjustments to maintain a healthy community ecosystem since the end of last year. The sequential increase was due to seasonality. In Quarter 2, Standalone new apps maintain their growth momentum on both year-on-year and sequential basis. Driven by our overseas business, adjusted operating income from the Momo app and Standalone new app was 456 million RMB, down 33% year-over-year and 6% sequentially, mainly due to the revenue decline. Adjusted operating margin was 18.5%, down 5.5 percentage point year-over-year and 2.4 percentage point sequentially. For Tantan, total revenue for the quarter was 234 million RMB, down 27% year-over-year and 3% sequentially, mainly due to the decreased number of paying users. Adjusted operating income was 20.6 million RMB compared with 31.9 million RMB a year ago and 28.8 million RMB a quarter ago, representing a margin of 8.8%, down 1.1 percentage point year-over-year and 3.1 percentage point sequentially. Now I will walk you through the programs we have made against our strategic priorities for Momo, Tam Tam, and new endeavors since the beginning of the year. Our main goal for the Momo Act this year is to maintain the productivity of the cash cow business with a healthy social ecosystem. Tam Tam's goal is to continue improving the court dating experience and build an efficient business model that drives profitable growth. As for our new endeavors, our goal is to further enrich the brand portfolio, push the business boundaries beyond normal and and build a long-term growth engine. I will now walk you through the details of our execution. On the product and operational front of the Momo app, in the second quarter, our product team focused on optimizing the community ecosystem, improving the female user experience, and increasing the volume of effective social interactions. To improve the experience of female users receiving green teams, our product team applied AI technology to help male users to generate greeting faces, which increased the success rate of ice-breaking chats and led to the growth of two-way chats. In terms of algorithm strategy, we increased the matching rate of active female users to improve the experience for users with unmatched social needs. Our optimization of product and recommendation strategy plays a positive role in increasing both the number of matches and the number of 2A chats. In addition, for the finding partners, or 找大字, a pilot program for our online to offline interest group, which has been running for a year, in the second quarter, we focused on expanding the coverage of our young user base to improve Momo's social brand perception. Our efforts to further improve and make breakthroughs in products and algorithms based on brand tone, wipe, and user preferences are an important foundation for normal cash cow business to maintain sustainable productivity. On the channel front, our user acquisition team continues to implement ROI-oriented strategies and work with our commercial product team to recommend interactive features to users from channels that match their spending capabilities to improve paying conversion. In order to increase the proportion of female users, we adjusted our advertising materials and channel strategies to focus on female users and work with our product team to Pacific Elite recommends interactive female-friendly features to improve their onboarding experience on our platform. After several years of optimizing channel strategies, the room to further reduce unit access is relatively limited. Accordingly, we have been working with KOLs to leverage new channels to bring in incremental traffic. increasing brand exposure with a limited budget and controlling user acquisition costs within a reasonable range. In the second quarter, the Momo app has 7.2 million paying users, an increase of 100,000 driven by the return of long-term vast users after the quarter one low seasonality. Now, let's talk about the productivity of our Momo Cash Cow business. In the second quarter, Momo's live streaming revenue was 1.22 billion RMB, down 50% year-over-year, but up 6% sequentially. The year-over-year decline was mainly due to our strategy to proactively reduce revenue-oriented large-scale competition events in order to maintain a healthy social ecosystem and spending softness amidst the macroeconomy. On the sequential basis, revenue increased after the seasonal low, but the growth rate was lower than the previous years. This was mainly due to the adjustment to our event operating policy, which resulted in lower profits for agencies and broadcasters. which in turn caused them to be less motivated. To address this issue, we have moderately increased the incentives for non-event operations, and the revenue sharing ratio has increased slightly quarter over quarter. Our product team also introduced specific interactive features for users at different levels. Increasing daily revenue and reducing reliance on event revenue. Moreover, we have introduced props such as privilege, functions, and host costumes in live streaming showrooms, which do not require revenue sharing. This not only enriches the variety of features and keeps users engaged, but it also plays a positive role in improving the profit level of live streaming. In Quarter 2, revenue from web-added services excluding content totaled 1.21 billion RMB, down 9% year-over-year, but up 5% sequentially. Last revenue from the Momo app was 850 million RMB, down 20% year-over-year, but up 5% sequentially. Revenue from Revenue from the standalone apps was 355 million RMB, up 36% year-over-year and 4% sequentially. The year-over-year declines in vast revenue from the normal app was mainly due to our proactive product and operational adjustments to mitigate the regulatory risk, which put pressure on a number of normal RAS paying user and app people. Additionally, macro factors also weighted on consumer sentiment. The sequential growth was mainly due to seasonality. On the product operational front, we launched new gifting features in the audio and video based commercial channels to help broadcasters effectively interactive with medium and long tail users. We also tested interactive light games such as Xiao Xiao Le and new categories such as Love Fortune Telling in our chatroom features, which has the largest user base. Our data shows that the pay conversion of the new features was higher than the one existing features. Turning to Tantan, Let me first talk about its user trends and financial performance. Although our cost reduction and efficiency improvement strategy implemented over the past two years has effectively driven Timetimes to profitability, the continued reduction in channel investment has put significant pressure on Timetimes' user base. Meanwhile, the lack of investments in branding over the years has led to a continuous decline in organic users. At the same time, we haven't been able to find an effective product level solution that can significantly improve user retention. The combination of the both mentioned factors has resulted in Tantan's MAU decreasing by 6% sequentially to 12.9 million in June. As of end of the second quarter, Tantan had 1 million paying users, down to 100,000 sequentially. The main reasons were the decline in MAUs. The short-term negative impact on new users on new paying user conversions from the UI upgrade and the regulatory-related redesign of the new renewal page. Coming to TomDance Financial, total revenue for the quarter was 234 million RMB, down 27% year-over-year and 3% sequentially. mainly due to the reduction in the number of paying users. Overall, our people were flat year over year, among which the IP pool of the live streaming business increased significantly as a result of our strategy to to emphasize less training, which has a lower correlation with the dating experience. While our people saw a significant year-on-year increase thanks to our efforts to promote relatively high-priced products, such as Black Gold, SVIP membership, and additional pay-as-you-go privilege for members. enabling the sustainability of the overall IP pool. In terms of business line, last revenue was 140 million RMB, down 80% year-over-year and 4% sequentially, while last year's revenue was 83 million RMB, down 43% year-over-year and 5% sequentially. Now, I would like to walk you through the efforts we make on TomTom products and user acquisition funds and the challenges we face. First, on the marketing and user acquisition funds. To address the issues of weak brand awareness among young users and the significant decline in organic users due to the network's brand commotion, we conducted branding events during the quarter in cooperation with offline venues such as bars and clubs in metropolitan cities with a high density of young people. We also leverage new media channels for online promotion to increase awareness of TangTang among young people and overall brand popularity. We believe that compared with user acquisition through channels, Driving user growth by improving brand awareness is a relatively long-term initiative that can take time to bear reasonably. So over time, it plays a positive role in the continuous and stable growth of our organic users. Especially as Changchang has gradually refocused on the court's dating experience by de-emphasizing the community-oriented and entertainment-oriented experience in region quarters. This is important for us to strengthen young people's awareness of Changchang's value for the dating through long-term brand investments and product improvements. Therefore, continuous increasing the opportunities for brand exposure with a controllable range of marketing investments will be a long-term direction for our branding strategy in the future. On the user acquisition front, factors such as the e-commerce festival in June led to fierce channel competition. resulting in a sequential increase in unit acquisition costs, which combined with the pressure on the new user output from the UI upgrade led to a sequential decrease in channel ROI. To address this, our user acquisition and membership product teams worked together to recommend a relatively high-end membership product to high-value users from channels. which help increase the user output. Now, let me give you an update on the progress TomTom has made on product and operational sites. In the second quarter, we worked on an upgraded version to improve the dating experience for users. Preliminary user interviews and surveys reviewed two major pain points in user experience. Uncertainty about authenticity of picture profiles and users' identity. And second, lack of response to chats after matches. Since the issue of spamming has been effectively controlled since the beginning of the year, users' feedback in authentic experience stem primarily from issues such as incomplete profile information, lack of real person authentication, and photos that look too good to be true. The first phase of our redesign in Q2 focused on guiding users to complete their profile information and encouraging them to spend more time learning about potential matching before swiping. Early data shows that users with a rich profile content has significantly higher post-match conversation rates than those just profile picture and basic information. However, this improvement in matching experience and different type interaction conflicted with our existing business model, which relied largely on users' quick swiping decisions based solely on looking at profile picture. The negative impact of this redesign on new user paying conversion was one of the reasons for the sequential decline in Tantan's number of paying users. Nevertheless, we believe that making short-term commercial sacrifices to improve long-term user experience is a critical foundation for Tantan to ultimately achieve the strategic goals of profitable growth We should monetize product features that improve user experience and add value to them rather than do so at the expense of user experience, which can only get us into a downward cycle. During the ongoing product upgrade and optimization, our commercial product team will continue to optimize paying experience to increase new user output. which should potentially offset the negative impact on revenue caused by the product upgrade. Lastly, in terms of our new endeavors, in the second quarter, total revenue of the new app reached 365 million RMB, up 36% year-over-year and 4% sequentially, mainly driven by our overseas business With a stable channel ROI, we moderately increase channel investments, driving steady growth in MAU and paying users. On the product and operational front, our team has been accelerating the localization process of overseas business since the beginning of the year. After strengthening the localization research on virtual gifts and props, Our commercial product team introduced hot stuff gifts that better match local user preferences. Meanwhile, our local operation teams refined our services for high paying users and standardized supply side collaborations and KPIs. This combined efforts led to a significant increase in number of top tier paying users. which in turn drove the app people growth. The simultaneous increase in paying users and app people has laid a solid foundation for sustainable and stable growth in our overseas business. Regarding our expansion in the MENA region, we are focusing on two key tasks. regional expansion and expanding our offering from more days to live streaming. These initiatives are taking longer than we anticipated at the beginning of the year as we realized that both efforts required a highly localized service team as a prerequisite. We do not know enough in the past couple of years in terms of localization. and we are now accelerating our efforts to make up the shortcomings. Overall, we remain confident in our growth potential in the MENA region. Compared to six months ago, we now have a clear understanding of what we must do to continue to grow, and we will continue to invest in this region. This concludes my remarks. Now, let me pass the call over to Kathy for the financial review. Kathy, please.

Thank you, Sik. 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 2024 was 2.69 billion RMB, down 14% young year, but up 5% quarter over quarter. Non-GAAP net income attributable to the company was 449.2 million RMB, compared to 632.1 million RMB for the same period of 2023, and 59.9 million from the last quarter. In Q1, we had a one-off non-cash tax provision. Excluding this non-cash tax item, non-GAAP net income would have been 508.5 million RMB for last quarter. Looking into the key revenue items for the quarter, firstly, On live broadcasting, total revenue from live broadcasting business for the second quarter of 2024 was 1.30 billion RMB, down 18% year-over-year, but up 5% quarter-over-quarter. The year-over-year decrease was largely attributable to a decline in the core Momoa live streaming business, and to a lesser degree, the decrease in Tantan. The sequential growth was driven by the core Momo live streaming service. In terms of segments, Momo app live broadcasting revenue totaled 1.22 billion RMB for the quarter, down 15% year-over-year, but up 6% quarter-over-quarter. The year-over-year decrease was due to our proactive product and operational adjustments to de-emphasize revenue-oriented competition events and weak consumer sentiment. The sequential growth was due to a rebound after negative seasonality. Compound's live broadcasting revenue amounted to 83.0 million RMB, down 43% year-over-year and 5% quarter-over-quarter. The decrease was due to our strategic decision to pivot away from the less state-centric service. Revenue from the value-added services for the second quarter of 2024 was 1.35 billion RMB, down 10% from Q2 last year, but up 4% sequentially. The YOY decrease was due to a decline in both Momo and Tantan. However, the growth of standalone new apps partially offset the downward revenue pressure. Value-added service revenue grew sequentially, driven by the recovery from Momo VAS and continued growth of new applications. Revenue from VATS on an external basis was 1.21 billion RMB in the second quarter of 2024, down 9% from Q2 last year, but up 5% from the previous quarter. MomoApp's value-added service revenue decreased from Q2 last year due to our proactive product adjustments to manage regulatory risks, as well as the weak standing sentiment. and the sequential revenue growth was driven by seasonal recovery. Revenue from the standalone new apps continued to grow both on a year-on-year and quarter-over-quarter basis, driven by the steady improvement of the overseas business. TomTom's value-added service revenue amounted to remaining $139.9 million, down 18% year-over-year and 4% sequentially. The decrease was due to a decline in paying users which was in turn due to a reduction in channel investment, the UI upgrade, and the adjustments to subscription renewal policy. Now turning to cost and expenses. Non-GAAP cost of revenue for the second quarter of 2024 was 1.59 billion RMB compared to 1.82 billion for the same period last year. Non-GAAP gross margin for the quarter was 40.8%, down 1.3 percentage point from the year-ago period. The year-over-year decrease was primarily due to a number of different factors. Number one, higher payout ratio in our overseas endeavors as we expand into new regions and try to launch new video service. as well as the change in revenue mix toward higher payout businesses. Number two, deleverage where direct personnel and infrastructure costs take up a higher percentage of revenues. Number three, payment channel costs represent a higher percentage of revenues as revenue mix shifts toward overseas business. The payout ratio of the core Momo app remains stable with a slight downward trend due to the reduction in event-related bonuses. Non-GAAP R&D expenses for the second quarter was 179.9 million RMB compared to 200.8 million RMB for the same period last year or an 11% decrease year-over-year. The decrease was due to the continuous optimization in personnel and infrastructure costs. Non-GAAP R&D expenses as a percentage of revenue was 7% compared with 6% from the year-ago period. We ended the quarter with 1,364 total employees, of which 282 are from Tantan, compared to 1,470 total employees, of which 339 from Tantan a year ago. The RMB personnel as a percentage of total employee for the group was 62% compared with 63% due to last year. Non-GAAP sales and marketing expenses for the second quarter was 360.6 million RMB or 16% of total revenue compared to 349.7 million RMB or 11% of total revenue for the same period last year. The year-over-year increase in absolute RMB amount was mainly due to an offline gala for MoMA live streaming service, which in 2023 was held in Q1. Non-GAAP G&A expenses was 89.5 million RMB for the second quarter of 2024, compared to 83.2 million RMB for the same period last year, both representing a 3% of total revenue. Non-GAAP operating income was 476.5 million RMB, a decrease of 33% from Q2 2023, down 7% from the previous quarter. Non-GAAP operating margin for the quarter was 17.7%, down 4.9 percentage points from the same period last year and 2.4 percentage points from the previous quarter. Non-GAAP OPEX as a percentage of total revenue was 23%, an increase from 20% from Q2 2023 and up from 22% in Q1 this year. Now briefly on income tax expenses. Total income tax expense was 102.6 million renminbi for the quarter, with an effective tax rate of 19%. In Q2, the company accrued withholding income tax of 17.3 million renminbi, which is 5% of undistributed profit generated by our wealthy. Without the withholding tax, our estimated non-GAAP effective tax rate was around 16% in the second quarter. Now turning to balance sheet and cash flow items. As of June 30, 2024, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments, and restricted cash totaled 14.32 billion RMB compared to 13.48 billion RMB as of December 31st, 2023. In Q2, we paid an equivalent of 716 million RMB cash dividends to our shareholders. In the current quarter, we bought back 395 million RMB or 54 million US dollar worth of shares in the open market. Net cash provided by operating activities in the second quarter 2024 was 475.2 million RMB. Lastly, on business outlook, we estimated our third quarter revenue to come in the range from 2.58 billion RMB to 2.68 billion RMB, representing a decrease of 15.2% to 11.9% year-over-year, or a decrease of 4.1% to 0.4% quarter-over-quarter. At segment level, for Q3 2024, on a sequential basis, we expect normal revenue to decrease mid to low single digits. On the time-to-time side, we expect revenue to decrease high single digits. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to changes. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Sue King Zhang with CICC. Please go ahead.

Thank you, Wang Yicheng. This is my question. My question is about Momo. Considering the current macroeconomic policy environment, how do we view the income and profit period of Momo's main business? And what are the product strategies for the next few years? Finally, I would like to ask, if we look at 2025, Thank you very much for taking my question. My question is about Kuo Mo Mo. Considering the current micro and the regulation environment, how to view the revenue and the profit of the half of the year? And what's your strategy for life streaming and investment in the next few years? Lastly, does MoMo have a chance to achieve top-line growth in 2025? Thank you.

Let me answer that. At the end of last year, we adjusted the operation strategy of live streaming and WAX audio and video scenarios, weakening the income as a guide for competitive activities. In the past few seasons, the lack of competitive flow has indeed caused a certain negative impact on the income of MoMo. But live streaming and WAX teams, through the introduction of some new daily interactive play methods, have made up for the lack of flow. For example, what Sik mentioned in his speech just now, selling personalized special items, and adding new types such as emotional stamps in WAAS chat rooms, have all played an active role in increasing pay and conversion. Overall, the adjustment of operation strategy is basically in line with our expectations due to the influence caused by flooding. The benefit level is even better than our expectations for the first half of the year. Therefore, we decided to continue the operation strategy of ecological adjustment in the second half of the year, which will further weaken the scene and play style led by the union, especially all kinds of competitive competition activities. Then the product will rely on the silent social attribute for different levels of paid users to launch richer interactive play. This will sacrifice some short-term economic interests, but we think it will be for the long-term stability and healthy development of cash flow business to win a good ecological environment. As for whether the income of 25 years can achieve growth, it mainly depends on the changes in the macroeconomic and supervision. The conclusion is still too early. Then the income and profit situation in the second half of the year, please Casey to introduce to you.

Okay, let me translate first. At the end of last year, we adjusted our operating strategy for live streaming and audio and video-based value-added service experiences to reduce revenue-oriented competition events. The decline in competition events of related revenue in the past few quarters has indeed had a negative impact on the Core Momo app revenue. But our live streaming and VAAS team managed to partially offset the revenue decline by introducing new interactive Gimmify features. For example, as Six just mentioned, we have introduced personalized costume props in the live streaming showrooms and also added new categories such as love fortune telling in our value-added service chatroom experience. which have played a positive role in improving pay-in conversion. Overall, the impact of the operating strategy adjustment on Walmart revenue is pretty much in line with our expectations. And the impact on the profit side is actually indeed better than our expectations for the first half of the year. Therefore, we have decided to continue the operational adjustments to the ecosystem in the second half. and further de-emphasize agency-dominated experiences and features, particularly various competition events. On the product front, we will leverage Momo's social attributes to introduce richer interactive Gimmify features for paying users at different levels. Although this will cost some short-term financial sacrifice, we believe it will create a positive ecosystem for the stable and healthy development of the cash cow business in the long run. As for whether our revenue can grow in 2025, it depends mainly on macroeconomic and regulatory changes. It's a bit too early to tell now. As for the revenue and profit guidance for the second half, I will leave that to Cassie. Cassie, please.

OK. On the financial outlook of the cash cow business, for top line, last quarter we said Q2 would be a good basis to think about the back half of the year. What that means is that if you take the 18% year-over-year decrease in MoMA application live streaming and value added service in Q2, you can apply that same weight for the back half of the year as well. Originally, we thought that second half might be a little bit better because the YOY comparison could get a little bit easier as we entered into the back half of the year. However, since the cash cow actually over-delivered on the bottom line for the first half, We decided that we should use this opportunity to continue our operational adjustments to push the ecosystem more toward social entertainment rather than competition-driven events. That decision could dip the revenue slightly for the second half of 24, but overall the cash cow is on track to deliver the annual profit target we internally set for it at the beginning of the year. So that's how to think about the cash cow. Other than the cow, within MoMoA segment, we also have the new applications, mainly the oversea ads. This piece will continue the robust YOY growth momentum. So that could partially offset the YOY decrease from the cow. I think for the whole year for the MoMoA segment revenues, we will likely to fall into the 10 to maybe 12 percent range in terms of YY decrease. With regards to 2025, as Tang Yan said, it's still too early to tell, but the two biggest determining factors here are still going to be macro and regulatory environment. Profit-wise, our view remains pretty much the same as last quarter. We're still well on track to hit the same adjusted operating margin as high teens for the year. Also internally, we are actually trying to deliver the same annual profit target in absolute dollar amount. We do have the flexibility and our also prepared to control the spending more tightly if top line is under a little bit of a pressure down the road. On the other hand, if things turn out to be more positive on the revenue front, we will perhaps invest a little bit more for the future. In other words, we are trying to manage the cost against the top line so we can deliver the annual profit target we set for ourselves at the beginning of the year. Those are the colors I can give at this point on the outlook for both top line and bottom line. Other than that, I don't want to pin ourselves down too much by promising a bottom line number at this point, at this time of the year. So hopefully that helps. Back to Ashley for next question, please.

Hi, Operator.

Ready for next question, please. Thank you. Your next question comes from Jenny Yuan with UBS. Please go ahead.

感谢管理层的提问机会。 我是来自UBS的Jenny。 首先,恭喜公司非常强劲的业绩表现。 我的问题是关于海外业务这一块的。 我们看到来自于New Apps这块的收入贡献表是 保持着非常良好的增长态势。 管理层能不能分享一下近期我们海外业务这块的发展情况。 So I will translate myself. First of all, thanks for taking my question and congrats on the results. My question is regarding our overseas business. With the good revenue growth momentum in the new apps, could management update us with overseas progress so far? And do you have any like financial or local guidance for this year that you can share with us? Thank you.

As we mentioned before, we believe that the development of overseas business is mainly based on three main lines. The first is to strengthen localization. The second is to extend the video from audio to video. The third is to expand the market of overseas rich countries and other countries in the Middle East. Just now, SIX mentioned in his speech that since the beginning of the year,

As I mentioned before, we believe that the growth in our overseas business depends on three main factors. Number one, strengthen localized operations. Number two, expand product offering from VoIP-based to live streaming services. And number three, expand our businesses in wealthy GCC region and other countries in the Middle East. As Six just mentioned, we have accelerated the localization process since the beginning of the year. And in the first half, we have made some good progress in feature design, refined services offering for high-paying users, and supply-side collaboration.

This is certainly far not enough for a group company that pursues global expansion.

We need to continue to expand our overseas personnel pool, strengthen localized operations, and improve our cross-border personnel management practices. Improving the international awareness of our team will help us more deeply understand and better meet the social preferences and needs of users from different cultural backgrounds.

In the first half of the year, the speed of the live broadcast is slightly lower than expected in the beginning of the year. This is mainly due to the fact that the product operation needs a longer time to solve the problem of localization and union cooperation. In recent years, members of the product and technical team of the Beijing headquarters have visited and sought out multiple key markets, and together with local teams, they have sorted out user feedback, optimized products, and technical solutions. The growth of overseas teams will promote localization, gift design, and UI short-term upgrade, increase live broadcast testing, The rollout of the live streaming experience in the first half was slightly slower than our expectations at the beginning of the year.

This is mainly because it took longer to resolve localization and agency cooperation issues on the product and operational front. Recently, key members of our product and tech team at the Beijing headquarters visited several key social markets and worked with local teams to sort out user feedback and optimize the product and technical solutions. And the growth of the overseas team has laid a solid foundation for upgrading localized virtual gift design and user interface, and speeding up testing of live streaming features to enrich Gamified experiences, and deepening our exploration in GCC countries and Turkish markets. After this round-off visit and joint work with the overseas team, We are more convinced of the revenue growth opportunity in the Middle East market and the strategy of achieving growth through enhanced localization. As for the financial part, I will leave that to Cassie. Cassie, please.

Sure.

As Diane mentioned, now it looks like we need to spend some time beefing up our local operations before we could pursue larger scale revenue growth in the broader MENA area. We've been lagging behind on that front in comparison with some of our, I mean, we've been lagging behind on localization front in comparison with some of our peers who were early into the Middle East markets. For example, the senior management paid our first visit to our major markets in MENA only last month. It was not until then did we realize that there is still some basic level of the infrastructures we need to put in place in order to take the revenue to the next level. So I guess we are going to spend the second half of the year playing some catch up in those areas. The good news is that after the trip, we are even more convinced that there are still a lot of growth opportunities in MENA, so revenue will continue to grow. But before we go full force into, for example, live streaming service, the wildlife growth will likely to slow down a little bit from Q1 level as we spend time laying the groundwork for strong localization. In Q2, the overseas peas achieved 40-something percent year-over-year growth. It could further slow to maybe mid-30s in the back half before our initiatives in Gulf countries and the live streaming start bearing fruits. So that's the color that I can give in terms of financial outlook for the overseas business.

Okay. Operator, next question, please. Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

Thanks, management, for taking my question. My question is about Tantan. Just in the prepared remarks, management talks about The revamp of Tantan is still in progress. Can management talk about the current situation and our ultimate goal, as well as how our revenue and profitability will be impacted by this revamp? Thank you.

In the past two years, Tantan has achieved good results in reducing capital control, improving channel efficiency, and promoting RP2 growth. and achieved a profit of six consecutive seasons. However, the current user size has not been completely stable. The impact of the number of users has also shown a slow downward trend. We believe that the fundamental reason for this situation is that Tantan did not achieve a real breakthrough in the core dating experience. Product levels need to make bolder attempts to find products that can significantly improve the flow of products to drive natural growth.

Penta has achieved good results over the past two years in terms of reducing channel investment, improving channel efficiency, and driving our people's growth, resulting in six consecutive quarters of profit. However, its user base has not yet stabilized, and revenues have also shown a slow downward trend due to the impact of user scale. And we believe The fundamental reason for this is that Tantan has not made significant breakthroughs in the co-auditing experience, and we need to be bolder at the product level to find product solutions that can significantly improve retention and drive organic user growth.

For this new version, our goal is to fully return to the user experience, adjust the interface, and optimize the user guidance strategy. For example, in order to enhance the authenticity of the user, we will use the user experience to encourage users to upload real pictures and text messages, and to guide users to complete the real person certification in the chat section after matching. Another prominent problem is that in order to improve DAU, our algorithm will try to take care of the experience of male users who do not easily get matching opportunities, and the consequence of doing so is that a small number of high-quality women get excessive exposure opportunities, resulting in a large number of matching opportunities that cannot be converted into chat interaction.

In this round of version upgrade, we aim to fully return to the user experience by adjusting the interface and optimize the user guidance strategy. For example, to enhance a sense of authenticity of users, We will encourage them to upload real pictures and text information by issuing trial membership benefits and guide users to complete real person authentication in the chat session after matching. And another prominent issue is that in order to improve DAU, our algorithm tries to take care of the experience of some male users who don't easily get matching opportunities. As a result, a small number of high-quality female users got excessive exposure, resulting in a large number of matches that could not be converted into chat interactions. Therefore, our algorithm team will make it easier for women to make up their minds by reducing low-quality matches, thereby improving chat conversions.

In order to encourage product manufacturers to make more attempts, the management did not want the team to be convinced by the short-term numbers during the revision testing period. Therefore, we will allow user size and income to have certain fluctuations in the short term. We think this is a long-term correct choice for the product. I am very happy to see that the team is sticking to the spirit of seeking new and changing in the challenging environment. The new revision of MoMo, the new revision of Tantan, not only shows the movement of our change of user demand, but also shows our

To encourage more exploration on the product side, management does not want the team to be constrained by short-term operational and financial targets during the pilot phase of the upgrade. Therefore, we are allowing some fluctuations in user scale and revenue in the short term. We believe this is the right decision for Tantan in the long run. I am very pleased to see that the team is maintaining the spirit of innovation and adoption in a challenging environment. The redesign of TanTan demonstrates not only our insight into evolving user needs, but also our strong commitment to improving user experience. As for the financial part, I will leave that to Cassie.

Okay, for TanTan, I guess there are three things worth calling out on the financial side. One is what Sik and Tangyan pointed toward in their comments. After a long period of trial and error, we figured that the only way out for Tangtan is to not worry about short-term KPI numbers and do whatever we believe is the right thing to do in order to give the users the best dating experience. So for the coming six months or so, we are going to allow the Tantan team to put financial targets aside and set top priority on the dating experience. While I do not have full clarity at this point on where the revenue would land for the rest of the year, I guess Q2's YY decrease could be a good reference point to project the back half of 2024. The second point I'd like to call out here is while Tantan is still not ROI positive in terms of user acquisition, we believe we need to keep the marketing spend at the Q2 level for the coming couple of quarters so that the scale of Tantan will be maintained. And the third thing I would like to mention here, is that if you put the first thing and the second thing I mentioned just now together and try to think about the bottom line for Tantan, I think the profit will likely to decrease from the first half of the year. But for the whole year 2024, our view is that Tantan is still going to be profitable. So that's Tan-Tan's financial outlook. Now I'm handing back to Ashley to make the call.

I think, yeah, this is the perfect timing. So thank you for participating and we'll see you next quarter.

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