Hello Group Inc.

Ladies and gentlemen, thank you for standing by and welcome to the second quarter 2025 Hello Group, Inc. earnings conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you'll 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 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. 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 on current market and operating conditions and relate to events that involve known or unknown risks and certainties 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 and certain set factors is included in the company's filings with the U.S. Security 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. Jiang Sichuan. Ms.

Jiang, please. Thank you. Hello, everyone. Thank you for joining our call. In Q2, both our domestic and overseas business continued to the positive trend that began at the start of the year, achieving good results across various operational and financial metrics. Next, I will give you an update on execution of our strategic goals. Starting with the financial performance, for Q2 25, total group revenue was 2.62 billion RMB, down 3% year-over-year. Domestic revenue reached 2.18 billion RMB, down 11% year-over-year, while overseas business was 442 million RMB, up 17.3% year-over-year. Adjusted operating income was 448 million RMB, down 6% from Q2 last year, with a margin of 17%. Our key priorities for 2025 include the following. For Momo, the goal is to maintain the productivity of this Cascade business with a healthy social ecosystem. For Tantan, the goal is to maintain and improve its core dating experience, and build an efficient business model that drives profitable growth. 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. In the first half of 2025, our domestic business gradually stabilized, with both revenue and profit exceeding our initial expectations For overseas business, we continue to drive rapid revenue growth with controllable costs and expenses. And now, let me walk you through the details. First, on MomoApp, all product and user acquisition efforts were focused around the goal of ensuring the productivity of the cash cow business. On the product side, the focus was to enhance user track experience to ensure long-term datability through a healthy social ecosystem. In Q2, we fully rolled out the in-house developed AI greeting feature, which helps male users to generate personalized greetings, driving the reply rates up by a high single-digit percentage. Building our use of AI to enhance ice-breaking chat experience We have also been testing an AI Chat Assistant feature, which provides content suggestions for male users during the ongoing conversation. This feature drives an increase in number of multi-round conversation and rate of in-depth chats, thereby improving retention and playing a positive role in stabilizing Momo's user base. On the user acquisition front, We further refined our approach based on ROI and reduced the budget of inefficient channels. We also optimized acquisition materials for high Apple users and drove sequential growth in Apple by enhancing the onboarding experience for paying features among users from these channels. The reduction in unit acquisition costs combined with the IP growth drove further improvement in ROI, which had already achieved a target greater than 100% in Q1. The overall user retention remains stable despite increased channel investment. Thanks to the improved user experience driven by product enhancement and algorithm optimization, as well as the ability to accommodate channel users more effectively, In Q2, MomoApp had 3.5 million paying users, a sequential decrease of 0.6 million due to our ongoing efforts to cut user exhibition investments with negative ROI. Since the ultra-low paying users that we proactively abandon make very limited contribution to the top line, the absence of this group has had a very minimal negative impact on revenue. Instead, their absence contributed to an improvement in profitability. We believe that the current user acquisition environment in China has fundamentally changed from the pre-pandemic period, and our user acquisition strategy has also evolved to achieve ongoing improvement in ROI. I believe that I'm confident that both Momo and Tantan still have room for continuous improvement in this area. Now, on the productivity of Momo cash cow business. In Q2, Momo value added service revenue reached 1.85 billion RMB, down 11% year-over-year. The decline was mainly due to the soft spending sentiment among high-paying users, particularly in live streaming experience amid the weak micro-environment. In light of this, we increased operational efforts in chatroom experience, which is popular among Meet Cohort users. We adjusted the common recommendation algorithm to enhance penetration rates and user scale of the audio and video-based experiences, thereby stimulating consumption enthusiasm among mid-cohort users. After the seasonal load, in Q2, we organized non-bonus driven competition events in live streaming. and increased the exposure rate of high-quality broadcasters to high-paying users in our algorithm. On the product side, we introduced new interactive GIFs that better facilitate relationship building and paying conversion between users and broadcasters. With the joint efforts of our algorithm and product, we enhanced our traffic monetization efficiency, coupled with a seasonal recovery. Bus revenue increased 4% from last quarter. Turning to Tung Tung. In order to maintain profitability amidst revenue pressure, we continue our strategy of reducing channel investment in Q2. A plan initiated at the start of the year with a target ROI of over 100% with further scale-backed budgets for underperforming channels. This decrease in channel traffic puts some pressure on the overall user scale. However, organic users' growth show a positive trend since the beginning of the year and increased steadily quarter over quarter. which potentially upset the decline in user numbers caused by the reduction in marketing spend. In June, CanCan's MAU reached 10.2 million, down 5% from last quarter. As of the end of Q2, CanCan has 720,000 paying users, a decrease of 80,000 from Q1. In addition to a decrease in MAU, another reason for the decline in paying users is the short-term pressure on the paying conversion caused by the improvement in user experience associated with the product upgrade. Following the full-scale rollout of the pilot project, there was a slight quarter-over-quarter decrease in paying ratio. Turning to Pantone Financials, Revenue from the onshore business in Q2 was 160 million RMB, down 18% year-over-year and 4% quarter-over-quarter. The revenue decrease was due to a decline in the number of paying users, but AppyPool increased 18% year-over-year and 8% quarter-over-quarter, which potentially alleviated the pressure on revenue. At the product level, to explore dating experiences suitable for Asians, we launched product upgrades from last year. Our key efforts included first, strengthening real user replication to enhance user authenticity and brand trust. Number two, refocusing on the core dating experience by simplifying the UI layout to focus on key information while downplaying non-court dating features such as fees and group chats. The improvement in user experience had a certain negative impact on paying ratio and user retention. The upgraded version was fully rolled out in Q2, and currently we are mitigating the negative impact of the new version on user matrix amortization through continuous product fine-tuning. On user acquisition, our goal was to achieve 100% ROI, including personnel costs, and to eliminate budgets from the underperforming channels. The unit acquisition costs narrowed significantly, and Apple slightly compared to last quarter. In Q2, ROI remained stable at a level far exceeding 100%. Improvement in organic traffic and in the channel ROI has led to a significant year-over-year and quarter-over-quarter growth in Tan Tan's profitability. In terms of monetization, we mitigated the impact of the product upgrades on paying ratio by restructuring the membership package and refining the operation of core cities and user groups. The differentiated product design and pricing scheme has driven a continuous increase in RP pools, resulting a revenue decline that is significantly smaller than the decrease in the number of paying users. Lastly, on the overseas business, in Q2, overseas revenue reached 442 million RMB, up 73% year over year and 7% quarter over quarter. The overseas revenue accounted for 17% of the group revenue compared to 10% in the same previous last year. In Q2, Overseas revenue maintained its rapid growth momentum, driven by the audio and video-based Shoshu product in the MENA region. For Shoshu, product optimization to the courtroom experience boosted both the pay-in conversion ratio and the pay-in user count, thereby driving the credential revenue growth from a high base. For Yahalan and Amar, The local teams drove growth in both the number of paying users and RP pools by continuously optimizing product features and strictly adhering to a paying user-oriented acquisition strategy. We initially expected the overseas revenue could have grown even faster with more aggressive marketing extensions we decided to be more prudent due to the following reasons. Number one, during Sochu's expansion to an affluent Gulf region, we felt the need for a better segmentation among different user groups. Therefore, we are currently trying to penetrate the market with a standalone app, which might take a bit more time. Number two, we noticed that the unit acquisition costs increased a bit too fast as we increased channel investment in two new apps. Therefore, we decided to move a bit slowly on the marketing expansion plan, focusing on improving app rules and optimizing acquisition costs first. We will increase our channel investment again once ROI reaches a satisfactory level. We prefer such kind of prudent model that balance growth and bottom line because it prevents the food from entering an awkward situation where the rabbit top line expansion is achieved through bottom line sacrifice. It's worth mentioning that our overseas business is not limited to audio and video-based social products in the media market. Another key focus of our overseas business lies in the dating market across developed countries. Currently, the overseas dating products led by our Singapore team already contribute a double-digit percentage of our total overseas revenue. driven by Tantan International. After taking over last year, the Singapore team re-evaluated the brand positioning and product strategy for overseas Chinese and other Asian country users. Tantan International shifted from balancing entertainment and dating to focusing on the court dating experience. Based on this, we have reshaped the product and branding. After one year's effort, Tantan International revenue has now stabilized. Moving forward, we will focus on dating and seek growth opportunities in overseas Chinese communities and the Southeast Asian market. We plan to take Tantan International as a pilot project to deepening our presence in our overseas dating field, providing users with more dating brands that facilitate the discovery of romantic relationships and effectively establish connection from online to offline. This concludes my remarks. Now, let me pass the call over to Cathy for the financial review. Cathy, please.

THANK YOU, DICK. HELLO, EVERYONE. THANK YOU FOR JOINING OUR CONFERENCE CALL TODAY. NOW LET ME TAKE YOU THROUGH THE FINANCIAL REVIEW. TOTAL REVENUE FOR THE SECOND QUARTER 2025 WAS 2.62 BILLION RIM AND BEE. DOWN 3% THE YOUNG YEAR BUT UP 4% QUARTER OVER QUARTER. NON-GAAP NET LOSS WAS 96.0 MILLION RIM AND BEE. compared to 449.2 million RMB from the same period of 2024. In the second quarter, we accrued an additional amount of withholding income tax of RMB 547.9 million associated with profits generated by our Wofi in China for prior periods. I will elaborate on this accounting treatment later. This tax expense item is one-off in nature and did not reflect the normal business operation of the current and future periods. Excluding this special item, non-GAAP net income for the quarter would have been $451.9 million, up 1% from Q2 last year and 12% from last quarter. Looking into the key revenue items for Q2, total revenue from battle-added services for the second quarter of 2025 was 2.58 billion renminbi, down 3% year-on-year, but up 4% quarter-on-quarter. On a user geography basis, PRC mainland FAS revenue was 2.14 billion renminbi, down 11% year-on-year, but up 3% quarter-over-quarter. The year-over-year decrease was primarily due to soft consumer sentiment stemming from the macro factors which put pressure on mobile business, and to a lesser degree, a decline in time-to-time paying users. The sequential increase was primarily driven by the recovery from Q1 seasonal weakness. VAS overseas revenue came in at $440.7 billion. million renminbi up 73% year-over-year and 7% quarter-over-quarter. The year-over-year and sequential growth was mainly driven by the rapid expansion from multiple social entertainment and dating brands across our REACH portfolio. Turning to cost and expenses, non-GAAP cost of revenue for the second quarter of 2025 was 1.60 billion renminbi compared to 1.59 billion for the same period last year. Non-GAAP gross margin for the quarter was 38.8%, down two percentage points from the year-ago period. The year-over-year decrease was due to three factors. Number one, an elevated payout ratio driven by structural revenue shifts towards overseas markets, which have a higher payout ratio, especially during fast expansion phases. Number two, workforce optimization leading to one-off severance payments. Number three, Payment channel costs and infrastructure expenses accounted for a larger revenue proportion due to geographic tilting toward international operations, where fee structures are systematically higher compared to domestic business. Non-GAAP R&D expenses for the second quarter was 172.0 million RMB. compared to 179.7 million RMB for the same period last year, representing a 4% decrease year-over-year. The decrease was attributed to personnel optimization. Non-GAAP R&D expenses remained stable at 7% of revenue, consistent with the figure from the previous year. We ended the quarter with 1,268 total employees compared to 1,364 from a year ago. The R&D personnel as a percentage of total employee for the group was 58% compared with 62% from Q2 last year. Non-GAAP sales and marketing expenses for the second quarter was 339.7 million RMB compared to 360.6 million RMB for the same period last year. both representing 13% of total revenue. The year-over-year decrease in sales and marketing expenses was attributable to the ongoing cost control strategy for the PRC mainland businesses, where both Momo and Tantan narrowed their marketing spend. This decrease was partially offset by the increase in channel investment for the overseas apps. Non-GAAP G&A expenses was 67.5 million RMB for the second quarter compared to 89.5 million RMB for the same quarter last year, both representing 3% of total revenue. Non-GAAP operating income was 447.7 million RMB with a margin of 17.1%. compared with 476.5 million RMB with a margin of 17.7% from the same period last year. Non-GAAP operating expenses as a percentage of total revenue was 22%, a decrease from 23% from Q2 2024. Now on income tax expenses. Total income tax expenses was 638 million RMB for the quarter. In Q2, the company accrued withholding income tax of 578 million RMB, of which 547.9 million RMB was a special non-recurring item related to prior periods, namely that in the second quarter of 2025, we accrued an additional withholding tax of RMB 547.9 million related to dividends paid or payable by our Wofi in mainland China to its offshore parent company in Hong Kong. This accrual followed a notice received by our Wofi MoMo Beijing from the Chinese tax authorities requiring it to withhold tax at the standard rate of 10% instead of the previously applied preferential rate of 5%. While the company continues to believe our initial assessment was reasonable, we note the authority's most recent interpretation and position and have complied accordingly. Among the total amount accrued, RMB $356.1 million was related to dividends paid by our WOFI in 2024 and in the first half of 2025. And this amount has been paid in September 2025. The remaining 191.8 million RMB was the additional 5% withholding tax accrued for the undistributed retained earnings of Momo Beijing as of March 31st, 2025. So from Q2 2025 onwards, we will accrue withholding tax rate at 10% for profit generated by our Beijing Wofi. Without the withholding tax, our estimated non-GAAP effective tax rate was around 11% in the second quarter. Now turning to balance sheet and cash flow items. As of June 30, 2025, Hollow Group's cash, cash equivalents, short-term deposits, long-term deposits, and restricted cash totaled 12.39 billion RMB, compared to 14.73 billion RMB as of December 31, 2024. The decrease in cash reserves was largely attributable to the repayment of a 1.76 billion RMB bank loan including accrued interest in the first half of 2025. Additionally, in Q2, we paid an equivalent of 346 renminbi. We paid an equivalent of 346 million renminbi cash dividends to our shareholders. That cash provided by operating activities in the second quarter 2025 was 250.1 million. Lastly, on business outlook, we estimated our third quarter revenue to come in the range from 2.59 billion renminbi to 2.69 billion renminbi, representing a decrease of 3.2% to an increase of 0.6% year-on-year. This is based on assumption that on a year-over-year basis, PRC mainland business will decrease mid to low-teens, while overseas revenue is expected to grow in mid-60s. 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. the prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please.

Thank you.

Just before we take the questions, for those who can't speak Chinese, please ask your questions in Chinese first, followed by English translation by yourself. Thank you. Operator, we're ready to take questions.

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 Thomas Cheung from Jefferies. Please go ahead.

晚上好,謝謝管理層介紹我的提問。 剛才在Prepare Remarks中提到, 默默在上半年的財務情況是好於年初的預期。 請問這個趨勢,我們在下半年, Good evening. Thanks, management, for taking my question. We have seen more and more fundamentals in first half came in better than expectations set in early 2025. Can we talk about our second half outlook? On the other hand, we just talked about different AI tools like AI Greetings and AI Chat Assistant. Can we also talk about what are our thoughts and strategy on AI application? Thank you.

Let me answer. In the second quarter, the WASH income has increased significantly, mainly due to seasonal recovery. In addition, the consumer sentiment and policy environment are relatively stable. Therefore, we have organized some non-profit-oriented competition activities. By providing overseas studying opportunities or making MVs and other reward methods for the anchor, we have replaced the simple reward distribution with a smaller cost investment to motivate the anchor to participate in the competition. Whether the trend can continue in the second half of the year mainly depends on the overall consumer sentiment and the enthusiasm of the union and the anchor. In terms of consumer sentiment, we have not seen any obvious deterioration, but the feeling is still relatively fragile. On the other hand, due to some new rules in terms of tax, the union and anchor may be affected in the second half of the year. We are also actively adjusting the operating policy to deal with it. The main purpose of adjusting the policy is to help the union and anchor strengthen the regularity. Let me translate this first.

Momobas revenue achieved sequential growth in the second quarter, primarily due to seasonal recovery. Additionally, with the relatively stable consumer sentiment and regulatory environment, we took the opportunity to organize a number of non-bonus-oriented competition events. By offering the winners incentives such as training tours abroad or production of hit music videos instead of simply cash rewards, we simulated broadcasters' participation in these competition events at a relatively low cost. Whether this trend can be sustained in the second half of the year largely depends on the overall consumer sentiment as well as the enthusiasm of agency and broadcasters. Regarding consumer sentiment, we currently do not see any significant deterioration, but it feels relatively fragile overall. On the other hand, Due to some new tax regulations, agents and broadcasters may be affected in the second half of the year. Internally, we are adjusting our operational policies to address this issue. The main goal of our policy adjustment is to help the supply side enhance compliance while maintaining the normal and reasonable income and profits. This may put some pressure on the platform's revenue and gross margin, but our team will strive to mitigate this impact through improved product operations. Currently, WOMO's overall revenue and profit in the second half of the year is expected to be relatively controllable. Moreover, tax compliance across the entire industry is also a good thing for the long-term stability of the social entertainment platforms. Another question is about AI.

Okay. The second question is about the application of AI in the social field. The group has been exploring and innovating in this area since 2024. There are also a lot of layout and investment. The current application is mainly designed in several aspects. One is to introduce AI into existing social products to improve user experience. Chinese users are generally not good at breaking down and chatting. This has created new relationships and maintained continuous interaction, which has caused a relatively large barrier. It is also a user pain point that we have been trying to solve from the operation of products. AI can play a very big role in this regard. MoMo's product implementation on AI breaking the ice was a good proof of this. We think AI can be used in terms of chat guidance and other similar support functions. In addition to applications, we recently released an independent AI role chat application in Japan. Users can choose their favorite IP and story mainline to chat and play roles. We have started to try to commercialize the current application in Japan. In addition to these application-level explorations, we have also invested a considerable amount in the underlying technology and basic facilities. Due to the lack of AI-based models for the social field in the market, the group has established a specialized large-model application team and has continuously increased its investment force. The second question is about application of AI in the social field.

Since 2022, The group has done a lot of explorations and innovations in this area with significant strategic deployment and efforts. At the application level, it mainly involves several aspects. Firstly, we are integrating AI into existing social products to enhance user experience. Chinese users generally struggle with ice-breaking conversations. which poses a significant barrier to building new connections and maintaining ongoing interactions. This has been a key user pain point we have sought to address through product operations. AI, however, can play a substantial supporting role in this area. MoMA's previous product practice in AI-assisted icebreaking have served as strong evidence of this. We believe... AI has broad application potential in this area, such as offering chat advice and providing other similar assistance functions. In addition to existing applications, we have recently launched a standalone AI character role-playing chat app in Japan. Users can choose their preferable IPs and storylines to engage in chats and role-playing. This app is currently doing very well in the Japanese market, and we have initiated preliminary modernization efforts. And beyond these application level explorations, we have also made significant efforts in underlying technology and infrastructure. Since there are no off-the-shelf AI vertical models tailored for the social sector available on the market, our group has set up a dedicated team for large model applications and continuously invested resources in this area. Based on MoMo's corpus, we are conducting in-depth research and model training on how to leverage AI to better help users build and maintain new connections more efficiently. Our progress achieved in this area will significantly enhance the product and commercial value to MoMo, TanTan, and many of our new social products in the overseas markets. Thomas, I think that's the answer to your question. So, operator, we're ready for the next question.

Thank you. Your next question comes from Leo Chiang from Deutsche Bank. Please go ahead.

Good evening. Thank you for accepting my question. My question is about Tantan. Thank you, management, for taking my question. Management mentioned in a prepared remark that the company has taken measures to restructure the membership package and refine the operations of core cities and user groups to mitigate the impact of the product upgrade on paying ratios. Can management elaborate more details of what measures you have taken? Thank you.

Thank you. I will take this. So the recent TangTang product upgrade has led to an increase in the number of users completing real-person verification, and profile pages now show more comprehensive information. User feedback shows that it feels like they can see more real people on TangTang. However, this improvement has resulted in users web thing less, which has put some pressure on revenue. To address this, in Q2, we adopted a user classification approach. Specifically, we group users based on whether they have complete real person verification, engagement level, paying history, and factors such as appearance. For different user groups, we implemented tailored exposure strategy and monetization approaches. For example, for users with high paying potential, we moderately adjusted their matching rate and paywall design to improve their paying conversion and RP pool. Additionally, we divided domestic cities into several tiers. based on user engagement level and regional consumption capacity. We develop future membership packages and pricing plans. Our goal is to maximize revenue either by increasing the paying ratio to grow the number of paying users or by boosting AppyPool to drive revenue growth. In terms of UI design, we focus on court dating features by streamlining the previously cluttered images and test information on the homepage. We now highlight the key information such as age, online status, and distance. The revenue pressure caused by the product upgrade was fully evaluated in Q2. Recent product and algorithm adjustments gradually mitigated the negative impact of the upgrade on the revenue. So therefore, it's worth noting that the improved user experience has helped drive organic user growth and boost user retention. Previously, the vast majority of new users on Tantan were acquired through paid marketing channels. However, since the start of this year, the number of organic users has been steadily increasing. In Q2, the number of new organic users significantly bypassed the acquired through channels. We believe the enhanced user experience provided by the product upgrades has established a solid foundation for recovering our user base and revenue following a reduction in channel investment. Yeah, that's it for the answer.

Operator, ready for the next question, please.

Thank you. Your next question comes from from UBS. Please go ahead.

Good evening. Thank you for the opportunity to ask questions. My question is about our overseas business progress. In fact, our overseas income has reached more than 70% in two consecutive seasons. I would like to ask whether such a high income growth can continue in the future, and what are our expectations for overseas income in the second half of the year? So let me translate myself. So we've seen like overseas revenue grow by over 70% year-over-year for two consecutive quarters. So could management please share your views on sustainability of this front growth? And what are your expectations for overseas revenue in the second half? Thank you.

Thank you for that question. I will take this to sum up the rapid growth of the overseas business in the first half of the year, in one line that is pretty well across the board. For the social entertainment business, SoChill has maintained steady growth momentum. The accelerated growth in the first half of the year is mainly driven by continuous breakthrough with Yahoo! Land and Amar. Despite ongoing increase in channel investment, the ROI has constantly met targets, allowing us to achieve revenue growth while improving profitability. This marks our most significant breakthrough since the start of the year. In fact, our social entertainment business could have grown even faster in Q2 and Q3. However, given the strict profit requirements set by the group, aiming for higher growth would sacrifice nonprofits. And we are conscious about this risky growth model at the moment. So in Tier 2 and Tier 3, we'll focus on increasing app rules and optimizing user acquisition costs. Although year-on-year growth may slow slightly, these three apps targeting MENA is still expecting to deliver very healthy and robust growth overall. So beyond social entertainment, our overseas dating business has also performed very well this year. This includes the stabilization of Tantan's overseas operations and other overseas dating products that are managed by our Singapore team. We have also recently completed the acquisition of the failing app brand Happen. Although this scout isn't large compared to our overall overseas business, this brand has significant untapped potential in terms of user possession in European markets and team capacity. capabilities. We believe that these overseas dating brands will become key growth drivers for our international revenue in the future. As for the revenue outlook, I will turn it over to Cathy.

Okay.

SIG has already given pretty clear and detailed answers about the growth dynamics of our overseas business. Let me try to translate those comments into more quantifiable terms that model builders can work with. First of all, as you can see in Q1 and Q2, we delivered over 70% overseas growth, which reflects strong momentum across both Sochiel and some of our emerging brands. As Sig mentioned, we could have moved a little bit faster in Q2 in terms of top-line growth. However, we purposely slowed down a bit toward mid-Q2. so we didn't have to sacrifice profit for faster top line and market expansion. It was really a decision out of strategic discipline and priority on growth with profit rather than growth at the expense of profit. And for that same reason, in Q3, we expect a temporary moderation, maybe toward a year-over-year growth of around 60%. as we deliberately pace marketing spend and focus on improving ROI through optimizing user acquisition costs and enhancing ARPU. That said, non-social emerging brands as a whole are continuing to accelerate at a triple-digit pace and will become an increasingly important growth driver as the year progresses. This is a good thing for the groups because a lot of the new brands are subscription-based with higher margins. And these brands, as these brands mature, we could see gradual improvement in our overall margin profiles. By Q4, as ROI optimization take effect and with the contribution from some of the newer brands, we expect overseas growth to re-accelerate again. Hopefully that answers your question. We're back to Ashley to take more questions.

Okay, so in the interest of time, maybe let's just take one last question before we wrap up for today's conference. Please, operator, if we have any.

Thank you. Your final question comes from Joy King-Jung from CICC. Please go ahead.

Thank you for accepting my question. Thanks, management, for taking my question. And the management just shared the revenue outlook for the second half of this year. And I would like to know if there will be any changes in terms of profit margin, in particular regarding the withholding tax issue that Kathy just mentioned in the prepared maps. Could management share more details? I believe investors are quite concerned about whether this is an issue specific to the company itself or if it is related to changes in industry-wide policies. Thanks.

Okay.

On margins, it's hard to separate the discussion on margins from our overall top line outlook. So here is a recap on how to think about revenue outlook for 2025 at the group level, again, in a more quantifiable way. As Tang Yan mentioned earlier, we expect some pressure on Momo's battle-added services in the second half, primarily due to recent tightened up in tax scrutiny affecting a lot of our performers and agencies. And of course, macro remains uncertainty factor here as well. For these reasons, there could be some fluctuations in revenue and gross margins, particularly in Q3 and Q4. That said, we've been adjusting our revenue sharing policies to offset part of the impact. So the overall effect on top line should remain pretty manageable. On the other hand, Tantan's performance, as you can see, has been a positive surprise after the restructuring at the beginning of the year where we substantially cut down personnel and marketing costs. Despite significantly reducing marketing spend, product improvements and monetization enhancements have kept revenue more resilient than expected, and the revenue is stabilizing as we move through the back half of the year. So it looks like we've achieved a stabilizing revenue trend on top of significant cost savings for Tantan, which will give us pretty meaningful improvement in Tantan's profitability compared to last year. Now moving back to group-level revenue outlook for 2025, we continue to see somewhere around a low teens year-over-year decline for domestic revenue, offset by strong growth overseas. where we anticipate a year-over-year growth around 70% for the whole year. Taken together, this implies that group top line in 2025 could either see a slight downtick from or remain sluggish versus 2024. That's the current view of mine. Turning to margins. On the gross margin line, there are mixed forces that sometimes oppose one another. First, we are slightly raising payout ratios to support domestic agencies as well as performers as they adapt to the new tax environment. That could mean one to two percent point increase in overall payout on normal. Second, as the overseas revenue contribution becomes increasingly meaningful, makeshift across businesses could swing growth margin one way or another, making it difficult to pin down the group level margin expectations. For example, if the dating brands continue to outperform, margin will improve. However, if some of our newer entertainment brands grow faster, it could shift the margin profile the other way around. That said, I can give you guys my best estimate at this point. As a reference point, adjusted gross margin was 39% in 2024. Last quarter, we guided for, if I remember correctly, somewhere around 36%, 37% for 2025. Given the recent developments in the live streaming and the value-added services space in China, we now expect 2025 gross margin to land closer to the lower end of that range. So that's for gross margin. Below the gross margin line, R&D will trend lower in absolute dollar terms as we continue to optimize headcount. Sales and marketing will increase low teens percentage-wise, reflecting our investment to drive overseas growth, especially some of the newer applications that we're launching in the second half, especially in Q4. At the operating margin level, last quarter we guided from 13 to maybe 14% on an adjusted basis for 2025. Our current view is that we will probably land in lower end of that range, depending on where the top line ends. So overall, despite some near-term challenges faced by some of our agencies from tax scrutiny, Our annual margin profile remains broadly stable, and I believe aligned with prior guidance as we continue to exercise cost discipline and fund overseas expansions. So now the big question, moving below the operating profit line, it's, it's probably worth elaborating a little bit more on the big special tax item for Q2. Basically, here is what happened. Recently, actually toward end of August, the tax authorities provided an interpretation that we believe represents a new position regarding the applicable withholding tax rate for dividends distributed by our Wofi to its Hong Kong parent company, Momo Hong Kong. The authorities have determined that the standard 10% rate should apply rather than the 5% preferential rate under the mainland China and Hong Kong tax arrangements that we have applied in prior periods. Actually, from April, from April 2024 to April 2025, our tax filings with 5% preferential dividend tax rates were subject to multiple routine reviews by the local tax bureau, local tax authority, which raised no objections or concerns at the time. In addition, we believe the practice we previously followed was a common industry industry approach for companies in similar situations. That's why we were surprised by the subsequent reassessment of the authorities. While we continue to believe our initial assessment was reasonable, we note that the application of tax laws can involve very complex interpretations. As a reasonable corporate citizen, we have complied with the authority's latest guidance and have adjusted our accounting accordingly. As to the question about whether this is industry-wide or specific to Hello Group, from Our recent dialogues with the third-party advisors who have been involved all along in this specific matter, as well as the dialogues with the authorities, is our belief and our understanding that the latest scrutiny that Hello Group experienced is not unique to us alone. Our original approach was not unique either. many companies with similar structures have followed the same practice. And if so, according to the authorities, there is a possibility that they could face similar scrutiny as well. That's what I can say at this point. So maybe back to Ashley to wrap up the call. Yeah, I think time is up.

So let's call it a day. And thank you for joining us today. And we'll see you next quarter. Operator, we're ready to close. Thank you.

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