JOYY Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Joys, Inc.' 's second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. I'd now like to hand the conference over to your host today, Jane Shear, the company's senior manager of investor relations. Please go ahead, Jane.

Thank you, Operator. Hello everyone, welcome to Joy's second quarter 2023 earnings conference call. Joining us today are Mr. David Sherling Lee, Chairman and CEO of Joy, Ms. Ting Lee, our COO, and Mr. Alex Liu, the Vice President of Finance. For today's call, management will first provide a review of the quarter and then we will conduct a Q&A session. The financial results and webcasts of this conference call are available at ir.joy.com. A replay of this call will also be available on our website in a few hours. Before we continue, I'd like to remind you that we may make forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our latest annual report on Form 20F, and other documents filed with the FCC. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollar. I will now turn the call over to our Chairman and CEO, Mr. David Sherling Lee. Please go ahead, sir.

Hello, everyone. Welcome to our second quarter 2023 earnings call. Let's begin by reviewing our overall performance for the second quarter. During the second quarter, we delivered a strong performance that was in line with our expectations. Our group revenue coming above the high end of our guidance at $547.3 million. We hit a non-gap net profit of 97.3 million and 89.1% year-over-year increase, with a non-GAAP net margin of 17.8%. Importantly, we maintained a positive operating cash flow of 61.8 million, which boosted our already solid financial position. The FIGO segment recorded a revenue of $471.1 million, a slight quarter-over-quarter increase, demonstrating further signs of stabilization. Its non-gap outreach profit reached 75.1 million, and its future expanded its non-GAFA operation profit margin to 16%. In the second quarter, our global MAUs grew to 275.6 million, a positive increase of 1% and a slight annual increase showing continued recovery and our effective product strategy, even as we are headed to our disciplined marketing spending. In particular, PicoLive's MAU sustained its strong growth momentum, increasing by 18% year-over-year 38.5 million. This was the fifth computing quarter in which SQLite recorded a double digital year-over-year and AU growth. Our performance in the second quarter was largely driven by our effective product strategy as we continue to enhance our users' content and social experience through cultivation of diverse premium content, productive feature innovations, and localized operations. On the product form, we constantly evaluate and strengthen our platform's content and the social interaction features. For instance, we have harnessed AI to refine our understanding of user profiles on Vigo Live. This helps us optimize our recommendation algorithm and deliver personal content that better suits users' individual interests. At the same time, we can use active tools and social scenarios to enhance interaction between users. As we enable user interaction in a range of virtual environments such as living streaming sessions, interface-based communications, and suite to match channels where users meet and chat with new people. We cater to broader and much more diverse set of social needs. We also actively developing and testing some new AIGC related features to facility content creation and streamer communication. Hiding into the second half of 2023, we will explore new ways to future improve users' content and social experience through product upgrades. We believe continuous efforts to improve product experience and facilitate engaging social interactions are fundamental elements for sustainable user growth and paying user conversion. On the operational activities front, We partner with diverse spectrum of KOLs and institutions during the quarter. This has increased our diverse, high-quality, localized content and successfully enhanced our brand's influence within local communities. Meanwhile, as a global tech company, Dedicated to enriching life and delivering value to our users and the local communities, we are actively and progressively embedding social responsibilities into our day-to-day operations. During the remainder, we launched a wide range of online campaigns across the Middle East, Southeast Asia, and other regions, encouraging users to participate and share their acts of kindness to embrace the festival spirit. We raise funds through multiple online campaigns on our platforms and extend our support to various programs programs under several international charities, such as the Indonesia Cancer Foundation, the Child Cancer Center of Lebanon, and Jordan's TUV. Being a community-wide platform, giving back to society a crucial part of our values. such as we remain committed to operational innovation with an emphasis on creating positive social impact. Looking ahead to the second half of 2023, while there have been some continuing signs of recovery, we remain consciously optimistic regarding industry outlook, feeling that ongoing macroeconomic uncertainties may still pressure consumer spending. We will continue to drive effective, high-quality growth through ongoing product and operational innovations. Moreover, as communicated in the previous quarter, Globalization remains a key drive of our business growth and our top priority. We intend to further concentrate our resources on building our core strengths and global business that align with our long-term strategies and actively pressure growth opportunities. Pursue growth opportunities. Before we move on to the detailed product updates, I would like to provide an update on capital return. We significantly stepped up our share buyback during the second quarter and about an additional 14.3 million of our shares. Since 2020, we have distributed around US dollar 1.32 billion of capital to our shareholders through those share buybacks and dividends. This represents 5.4 times of our total non-GAAP net profits excluding continued operation over that period, a substantial amount especially when compared to our market cap. This demonstrates our ongoing dedication to reward our shareholders' long-term support. committed to create and return value to our shareholders. And we will continue to actively utilize our share buyback program going forward. Now, let's take a closer look at our product. We will start with BeagleLine. In the second quarter, BeagleLine Remaining is double digital user growth momentum for the fifth consecutive quarter, with MAUs increasing by 80% year-over-year to 38.5 million. We observed growth across several key regions, with year-over-year growth rates of 10.3% in Europe, 16.9% in the Middle East, and 20.8% in South Asia and other emerging markets. Legalized revenue continued to stabilize during the quarter, and we saw recovery from developed regions, especially Europe. Japan, and Korea. BeagleLive launched a series of standard activities across various regions in the second quarter, delivering a continuous stream of diverse local and premium content to users. In April, BeagleLive partnered with social media influencers Kuai and launched a reality-based show in North America. This innovative content provided extremely popular, going over 2.3 million viewership. This was the second original BeagleLive reality show following the successful launch of its previous series. in charter back in February. The production process for both shows included script cleaning, artist management, filming production, and the marketing we carried out by Big O Live's local team. The success of these series showcased our ongoing dedication to cultivate diverse, high-quality content to our local user communities. Similarly, in June, BeagleLive partnered with the Revolution Music Festival in Vietnam to provide users with an eight-hour live broadcasting of events. This gave users the ultimate music festival experience and attracted hundreds of thousands of viewers worldwide. We actively encourage the user engagement on bigger lives, social communities through a number of online events. Our family feature launched in 2019 brings together streamer fans and other unity by similar interests to uphold the honor of their respective families. It has become a vital funding element of our user community. In May, we introduced the family mosque to further strengthen these funds. During this event, Figo Live had an held a number of activities and contests with family ranks and awards based on participation and interaction levels. In the Middle East, Big Alive had an offline meetup for the top local families, which created a unique opportunity for family members to build offline connections. Family months generated significant user interest and attention and fostered rapid growth in family sizes. The number of contacted streamers who are members of a family grew by 5.1% from the first quarter, and the daily paying user with family membership rose 3.8%. On the content development front, Bigline retained its focus on incentivizing the creation of video content in the bar channel. Our introduction of newly refined video creation tools and implemented presentation of reward system to encourage creation, consumption, and sharing on bar. Those at 26.5% sequential increase in the amount of bar video content produced in the second quarter, with the total number of video shares and downloads doubling over the same period. During the quarter, we also upgraded our user interface and optimized our content recommendation algorithm. These initiatives further improved users' overall viewing experience in VAR, and average impressions per user increased by 5.7% sequentially in the second quarter. At the same time, we enhanced the social interactions by introducing the ability to send mass images and play games within live sessions on BeagleLine. This fulfilled a 1% sequential increase in the number of users going live in multi-gap rooms, along with a 15.1% sequential increase in the number of users actively engaging per live session. Next, let's move on to Leaky. Leaky's focus remains set on improving product monetization efficiency, and organic user acquisition capabilities. During the second quarter, Nike increased its revenue by 11.2% sequentially, and it continued to deliver profitability at the product level. This marks its second consecutive half year of achieving break-even. After initially doing so in the second half of last year, despite a sequential decline in this quarter, saw a slight increase quarter over quarter. and CEOs even grow by several digits in some core regions. In the second quarter, Nike further developed its creator services and improved user content and social experience. To increase creators' efficiency, Nike rolled out a video collection feature to streamline the video production process. They can also furnish the creatures with data and analytic tools to help them find their contents and better align it with the interests of their audience. has also supported its content creators by connecting them with e-commerce platforms and brand machines to generate additional monetization channels. In June, BlackBerry Host is its first ever summer party. The event aims to acknowledge outstanding creators from the past year and boost their visibility on the platform. It brought together hundreds of top talent and brand representatives, encouraging in-person interactions and networking. As a result, the number of official creatures likely increased by 4% sequentially in the second quarter. It also further enhanced user interactions within its community. In the second quarter, IAM penetration rates continued to grow, increased by 6.8% sequentially. Overall, user engagement, as measured by the ratio of DAU to MAU, grew by 4.2% sequentially. while average user time spending increased by 15.8%. Finally, let's turn to Hargo. In the second quarter, Hargo's revenue increased by 6.4% sequentially, and it further narrowed its operating loss through the continued cost optimization. Importantly, Hanco's operation cash flow turned positive during the quarter, reaching another milestone on the road towards self-sufficiency. During the quarter, Hanco upgraded a number of features for further enhanced internetization efficiency and improved user social engagement. To improve through users playing segments and enhanced monetization. Hangou launched a celebration room, a new kind of multi-gap room for specific occasions, such as the birthday parties. It also introduced a voting feature multi-gap rooms and enable additional decoration and communication privileges to HAPO couples. HAPO also optimized the distribution of multi-gap real-time interactive rooms across different regions and effectively upgrade the user's interactive social experience through the specific application of tracking up 3D . These products' development results resulted in a 1.2% increase in the penetration rate of hard-boiled social channels. Average user time spent on Hustle today rose as well, growing by 5.2 percent from the first quarter. To summarize, despite ongoing macroeconomic uncertainties, our strong execution enabled us to deliver a solid financial performance in the second quarter. Through continuous product improvements and operational enhancements, Beagle successfully navigated the higher winds and improved its operation margin. With Beagle Live, sustained its strong user growth momentum. We also significantly sped up our share repurchase during the quarter. our confidence in our future growth prospects and our commitment to reward the long-term support of our shareholders. Looking ahead to the second half of 2023, we will continue to thrive. effective high-quality growth through ongoing products and operational innovations. We will further concentrate our resources on building our core strengths and global business with our long-term strategies and actively pursue growth opportunities. With our proven execution capabilities, and robust financial position, we are well positioned to size growth opportunities and generate value for our shareholders. This concludes my previous remarks. I will now turn the call to our Vice President of Finance, Leo for our financial updates.

Thanks David. Hello everyone. Despite macro uncertainties, we achieved solid results in the second quarter. Our revenues in the second quarter exceeded the higher end of our guidance and we continued to deliver better profits. thanks to our strong execution to enhance our product experience and improve operational efficiency. Notably, Beagle segment showed more signs of stabilization by delivering a slight positive sequential growth in its revenue, while further improving its non-gap operating margin to 16%. Our operating metrics are also continuing on its growth track. We booked a positive year-over-year and quarter-over-quarter growth for our total global MAU, even as we adhere to our disciplined marketing spend. Importantly, BeagleLive maintained its strong user growth momentum. Increasing HMO by 18% year-over-year to 38.5 million in the second quarter, achieving double-digit year-over-year growth for fifth consecutive quarters. Those demonstrated our effective product strategy and enhanced user acquisition efficiency. Next, let me walk you through our group performance for the second quarter of 2023 in detail. Our total net revenues were US dollar $547.3 million in the second quarter. Revenues from legal segment were US dollar $471.1 million. Cost of revenues for the quarter decreased to US dollar 349.6 million, among which our revenue sharing fees and accounting costs decreased to US dollar 222.6 million. Beagle's cost of revenues were US dollar 287.6 million, down by 7% year over year. Gross profit was US dollar 197.8 million in the quarter with a gross margin of 36.1%. Eagle's gross profit was 183.5 million with a gross margin of 38.9% up from 38.5% in the same period last year. Our gross operating expenses for the quarter were US dollar 191.7 million, increased from US dollar 185 million in the same period of 2022. Among the operating expenses, sales and marketing expenses decreased to US dollar 87.2 million from US dollar 98.4 million due to our effective control over market expenses and optimization of overall sales and marketing strategy. RMD expenses increased to US dollar 75.5 million from US dollar 62.9 million in the same period of 2022. primarily due to increased R&D personal related expenses as we prioritize the resources into building our technological capabilities. Legal operating expenses for the quarter were US dollar 125 million, down by 8% year over year. Our group's gap operating income for the quarter was U.S. dollar 9.4 million. Our non-gap operating income for the quarter, which excludes SBC expenses, amortization of intangible assets from business acquisitions, as well as impairment of goodwill and investments, was U.S. dollar 34.4 million in this quarter. with a non-GAAP operating income margin of 6.3%. Beagle's GAAP operating income for the quarter was US$60.4 million, and Beagle's non-GAAP operating income was US$75.5 million, representing a non-GAAP operating income margin of 16%, up from 15.5% in the same period last year. Our gross net income attributable to controlling interest of Joy in the quarter was US dollar 155.1 million compared to net income of US dollar 18.7 million in the same period of 2022. Net income margin was 28.3% in the second quarter of 2023. compared to net income margin of 3.1% in the corresponding period of 2022. Other groups' gas net income was larger in the second quarter this year, mainly due to the realized gains from the disposal of certain equity investments increased interest income, driving by higher market interest rates. and foreign currency exchange gains during the quarter. Bigelow's GAAP net income in the quarter was US$83.7 million, increasing by 26.6% year-over-year. Bigelow's GAAP net margin was 17.8%, up from 13.1% in the same period last year. Non-GAAP net income attributable to controlling interest of Joy in the quarter was U.S. dollar 97.3 million compared to U.S. dollar 51.5 million in the same period of 2022. The group's non-GAAP net income margin was 17.8 percent in the quarter compared to 8.6 percent in the same period of 2022. Beagle's non-GAAP net income was US dollar 99.7 million, increasing by 15.5% year-over-year. Beagle's non-GAAP net margin was 21.2%, up from 17.2% in the same period last year. For the second quarter of 2023, we booked net cash inflows from operating activities of U.S. dollar 61.2 million. We remain a healthy balance sheet with a strong cash position of U.S. dollar 3.8 billion as of June 30 of 2023. Our cash position decreased quarter over quarter as we repurchased U.S. dollar 432 million of our 2025 convertible note and accelerated share buyback, partially offset by proceeds received from disposal of certain equity investment during the quarter. In the second quarter, we continued to enhance returns to shareholders through dividends and share repurchase. We have substantially accelerated our share buyback and repurchased approximately U.S. dollar 214.3 million of our shares and declared cash dividends in an aggregate amount of U.S. dollar 34.2 million, which altogether represented 255% of our non-GAAP net income. We will continue to actively utilize our share repurchase program in the coming quarters. As communicated last quarter, in line with our global positioning and commitment to high-quality, sustainable growth, we have strategically streamlined and implemented certain proactive adjustments to some of our non-core reasons since last quarter so that we can concentrate our resources towards building our core strengths and business that align with our long-term strategic goals and further enhance healthiness of our ecosystem. Therefore, possibly as a result of these adjustments for our business outlook, We expect our net revenues for the third quarter of 2023 to be between US$537 million and US$567 million. This forecast reflects our preliminary views on the market and operational conditions and business adjustments, which are subject to change. In conclusion, We have made meaningful progress in the past several quarters in our efforts to enhance our efficiency, expand our profitability, improve our user experience, and accelerate user growth. We have also strengthened our execution capabilities and improved the healthiness of our global ecosystem. Going forward, We will continue to cultivate our global user community and provide better interactive experiences to our users through constant product innovation and operational enhancements. We expect to continue to prioritize our sources into high potential business that align with our long-term strategic and build our core capabilities while maintaining self-sufficient in our cash flows with our robust financial position. We are confident that we are well positioned to seize growth opportunities and generate sustainable shareholder value. That concludes our prepared remarks. Operator, we would now like to open up the call to questions. Thanks.

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. When asking a question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. Your first question comes from Ms Chong with Jefferies. Please begin.

Thanks management for taking my questions. My question is on Beagle Life. Can management comment about the trend across different regions in the second half? How should we think about the overall user base as well as the monetization trend? Thank you.

This shows the trend of gradual recovery. In the second quarter, the performance of Europe and Japan will be better than that of other countries. The first recovery of developed countries is related to the macroeconomic economy on the one hand, because the overall macroeconomic economy of developed countries is relatively strong. The other is also related to our operating strategy. In recent seasons, our overall operating strategy includes investment in operating resources, product optimization, These aspects are consciously linked to high-end users. As a result, the revenue of developed countries and regions will recover faster. Looking at the second half of this year, as we enter the era of market operations, we expect the revenue of BeagleLive to recover and grow. Currently, in our Q3 guidance, the revenue growth of BeagleLive is Yeah.

Thank you, Thomas, for your question. This is David. I will answer your first question. So first let's look at the recent monetization trend across different regions. The developed countries region has shown a gradual recovery trend in the past quarters. And in the second quarter, we saw that trend continue with Europe, Japan, and Korea deliver a better QOQ growth than other countries and regions. The fact that the developed countries are the first to recover is related to the macroeconomy, which turned out to be much more resilient, and it's also related to our operational strategy. In recent quarters, we consciously tilted our operation strategy, including our user acquisition spending, operational resources and product optimizations towards users with higher paying potentials. The developed countries generally have more users with higher paying potential, therefore, benefit from such operational strategy and enjoy a faster revenue recovery. Looking ahead to the second half of the year, we expect Eagle Live's revenue to return to positive growth as we enter into a peak season of operational activities. And the implied QOQ growth for Ecolife in our current Q3 guidance is in the low single digit to mid and high single digit range. Given the current macro uncertainties, I believe we still need to remain cautiously optimistic regarding industry outlook. We will continue to closely monitor the changing environment, flexibly adjust our operational strategy, and steadily drive high-quality growth.

In terms of user growth, the MAO of G2 Group has achieved the same and similar double growth. The user growth of BeagleLive is also relatively continuous. and maintained an increase of 18% compared to the same period last year. We are still in the market and sales market market and sales market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market market So we came up with a more detailed content generation policy and a differentiated proposal. For a user community with more than 30 fish species at the same time in more than 150 countries, there is a lot of room for diversified and differentiated content in BeagleLive. In this respect, I don't think it's a good idea to optimize it. Every time we do it, can be targeted to improve the user experience and flow. The second is the innovation of market operations. For example, through the collaboration of KOL in various vertical areas, KOL can maintain a relatively good market share. Then in Southeast Asia, we Q2 also held a series of activities, including the self-made variety show and Vietnam Music Festival, which helped us reach more and more users. In the last one, under the experience of a series of product optimization and user experience, we also received a very high rating in the app store. Therefore, we have obtained more and more official recommendations from the public resources, which has brought us more and more organic traffic growth. I believe that the product strategy of BeagleLive is still relatively effective. We will continue to use product optimization and functional innovation, and fine-tuning operations to enhance user experience and increase growth.

And for your second question on user growth, in the second quarter, you can see our group's MAU realized positive growth both year-on-year and quarter-over-quarter. And importantly, BeagleLive sustained its strong user growth momentum with its MAU increasing by 18% year-over-year. And that was actually accelerated, especially when compared to the same period last year And this was achieved even as we adhered to our discipline marketing spend. And it means that we have a larger contribution from organic growth. And we attribute the enhanced user growth efficiency to several aspects. First of all, we conducted in-depth analysis of user profiles in each region and introduced a more refined content segregation and differentiated recommendation algorithm on BeagleLive, which we believe improve user experience and retention. And for BeagleLive, this is a product that operates in more than 150 countries with contents in 30 languages and a very diverse user community. We believe there is plenty of room for refined and differentiated operation of content and technically there is no end to the continuous optimizations of operations in this regard. So we'll continue to work on that and we expect that to continue to drive better user experience and also retention. And second, our innovative local operations we believe have successfully brought increased amount of organic traffic. During the quarter, we continue to work with a diverse spectrum of KOLs, and those events continue to bring abundant traffic, especially in Southeast Asia. And as I just mentioned in my preparing map, our local campaigns, such as the original variety show in North America, the Revolution Music Festival in Vietnam, all help us reach a wider user base. And lastly, as a result of our enhanced user experience, our ratings in the app stores have indeed improved. And therefore, we obtain greater traffic due to the recommendations by these app stores. So to conclude, given our performance in the past few quarters, I believe BeagleLive's user growth strategy has been effective. we will continue to enhance our user experience through product optimization, feature innovation, and refined operations, and drive efficient user growth.

Thank you.

Thank you. Your next question comes from Henry Sun with JPMorgan. Please go ahead.

Thank you for accepting my question. 我想请管理同事分享一下公司在 AIGC 方面的探索,有什么应用和目前进展如何,谢谢。 Thanks, management, for taking my question. Good, management, share more details on deployment of AIGC application into the product planning. What are the current progress on application? Thank you.

好,我们一直在 AI 方面有很大的讨论, And then our current AI technology is mainly used in user interest optimization, intelligent infrastructure system, and AI content monitoring. For us to dig into more detailed user interest points, more accurate user and content matching, and improve user social experience, it is still very helpful. We are also actively exploring applications of AI in other scenarios. especially in helping users to communicate and help users express their personality. For example, we launched the social function of 3D digital virtual people in HUGGLE. Users can quickly generate 3D digital people by taking photos or uploading videos, and can also support digital people's facial expressions, movements, and body posture through voice recognition. They can also support digital people's voice recognition, to further enhance the immersive multi-person interaction experience for users. Recently, we tested the AI chat robot function in BeagleLive. The AI chat robot can be used as a KOL assistant, and then solve the intelligent interaction with fans, and then enhance the interaction efficiency between the streamer and the fans, helping the streamer to further expand the fan group. Currently, these applications are still in the early development and small-scale experiment stage. This is David.

I will answer your question on AI and AIJC. Actually, we have been having a huge commitment in AI and heavily invested into our AI team as well. And as we've shared in our previous quotas, our team mainly leverages AI for in-depth user profiling, differentiated intelligent recommendations, and content quality management. And AI has enabled us to identify user interest and direct users toward more relevant and personalized content. And it has also improved our users' social and content experience. We believe that AI has been very valuable for developing our interest-based community. And we're also actively exploring other applications, especially in improving user interactions and also helping users to freely express their digital personality. For example, in HAGO's previously launched 3D space feature, it empowers users to create their own 3D virtual avatars and interact with each other in various virtual scenes, and it actually enables users to engage in an immersive social experience. Simply uploading a photo or videos of those users, users can easily create their personalized 3D digital avatar and you could drive the movements of mouth, facial expressions, body gestures of the avatar in real time with the input of text and audio. And recently, And we can also recreate the voice of a real person in the 3D avatar as well. And recently at Beagle Live, we are testing our AI-enabled chatbot, which can serve as an assistant to streamers and interact intelligently with their fans, improving the efficiency of streamer-fan communication and potentially helping the KOL to further expand their fan base. So currently these AIGC related features are still in the early stage of development and therefore we need to continue to iterate and optimize based on user feedback. We remain committed to bring innovative interactive experiences to our users. Thank you. Next question, please.

Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

谢谢管理层接受我的提问。 我还有一个问题是想问关于我们在江本政策, 还有我们就是在三废往后的一个趋势, 还有我们的margin的outlook, 应该在下半年还有明年我们的一个看法。 Thanks, management, for taking my questions. My question is about the cost side. Can management comment about our cost optimization strategies as well as the trend in operating expenses and as well as margin outlook in the second half and 2024? Thank you. Okay, thank you for your question.

Let me answer it. In the second quarter, our overall profit is better than expected, especially in Beagle's board. Non-GAAP's operating profit rate has risen from 13.6% in the previous quarter to 16% and increased by 2.4 points. Here, the profit rate has increased significantly from 37.4% to 39%. This includes the cost of content, server rescue, and payment system costs. In addition, in Q2, Lucky is in a state of continuous profit, which also contributes to the overall profit improvement of the BQ version. As mentioned before, from Q2, we actively adjusted to a small part of non-standard focus business and product functions to better focus on globalized business and consolidate the health of business ecosystem. In contrast, these adjustments will actually bring some financial impact, and there will be a certain amount of disruptions in Q2 and the revenue of the following few quarters. In the second half of the year, we expect the Beagle business to recover and grow. At the same time, considering that the second half of the year will enter the peak of market operations, we expect the market sales of Beagle to increase and the profit rate to fall. But due to the overall increase in operating efficiency, the effect is more obvious. We believe that the non-GAAP operating profits of B2 and B3 will remain generally stable at the level of 2022. In general, we will continue to use profits and heavy cash flow as a guide to continue to promote the increase in operating efficiency, and continue to maintain the operating and stable cash flow of the company. Thank you.

This is Alex. I will answer your question. So for the second quarter, we actually deliver better than expected profits, especially for Beagle segment. It achieved a non-GAAP operating margin of 16% up by 2.4 percentage points from 13.6% in Q1 And Beagle's non-GAAP gross margin was improved from 37.4% to 39%. And that was mainly due to optimization of content cost, our server depreciation expenses, and payment channel expenses. And in addition, Leighty continued to deliver profitability in Q2 and contributed to profit improvement. in the BCO segment. As I just mentioned in my prepared remarks, starting from Q2, in line with our global positioning, we have strategically streamlined and implemented certain proactive adjustments to some of our non-core operations so that we can concentrate our resources towards our core global business and further enhance the healthiness of our global ecosystem. We expect these adjustments would have adverse impacts on our top line and bottom line in Q2 and the following quarters. Looking ahead to the second half of the year, we expect Beagle's revenue to resume positive QOQ growth. And as we enter the peak season of operational activities, we expect Beagle's sales and marketing expenses to increase QOQ as well. Therefore, Beagle's non-GAAP operating margin in the second half will likely be lower as compared to the first half of the year. However, given how much we have already achieved in the first half of the year regarding operational efficiency improvement, for the full year of 23, we still expect the non-GAAP operating profit margin of Beagle to remain roughly stable compared to last year. To sum up, we'll continue to value profit and cash flow self-sufficiency, and we will drive further improvement in our operational efficiency. And at group level, we expect to remain profitable and continue to generate positive operating cash flow. Thank you. Next question, please.

Thank you. Your next question comes from Yaiwen Zhang with China Renaissance. Please go ahead.

My question is on shareholder return. So can you update us on our latest progress on share buyback? And how should we think about future buyback pace? Thank you.

Thank you for your question. Let me answer it. As we mentioned in the last episode, Q2 will increase the probability of repurchase. From the data of Q2, we claim to have repurchased 2.14 billion US dollars. In the first half of this year, in addition to the dividend, the total amount of investment of our shareholder return has reached 300 million US dollars. You can feel the sincerity of the company's return to shareholders from this probability. Thank you for the question. This is Alex. In Q2, as mentioned last quarter, we substantially accelerated our share repurchases and buy back approximately 214 million of our shares

during the quota. So for the first half of this year in total, including our share buybacks and dividends, we have returned around $300 million to our shareholders. You may also infer our commitment to reward the long-term support of our shareholders from that number. As of the end of Q2, we still have around $570 million unutilized quota under our current share repurchase program. we will continue to actively utilize Share by Back in the following quarters to reward support of our shareholders. Thank you. So that was the end of our call. Thank you so much for joining today. We look forward to speaking with everyone next quarter. Thank you.

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