Hello Gr sees 73% overseas revenue growth but faces 3% decline in total revenue and tax-related pressures

Operator - (00:02:02)

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 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.

Ashley Jing - (00:02:32)

Thank you.

Operator - (00:02:32)

Please go ahead, Ma'am.

Ashley Jing - (00:02:33)

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. Jiang Sichuan, COO of the company, and Ms. Peng Hui, CFO of the Company. They will discuss the Company's business operations and highlights as well as the financials and guidance. They will all be available to answer your questions during the Q and 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. Jiang Sichuan, Ms. Jiang Sichuan.

Jiang Sichuan - Chief Operating Officer - (00:04:03)

Thank you, Ashley. Hello everyone. Thank you for joining our call. In Q2, both our domestic and overseas business continue to the positive trends that begin 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 73% 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 cash cow business with a healthy social ecosystem. For Tontan, 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 Momo App, all products 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 chat experience to ensure long term stability through a healthy social ecosystem. In Q2 we fully rolled out the in house developed AI greeting feature which helps mail users to generate personalized greetings, driving the reply rate 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 mail users during the ongoing conversation. This feature drives an increase in number of multi round conversations and rate of linked in depth chats thereby improving retention and playing a positive role in stabilizing momo's user base. On the user acquisition front, we further refine our approach based on ROI and and reduce the budget of inefficient channels. We also optimized acquisition materials for high ARPU users and drove sequential growth in ARPU by enhancing the onboarding experience for paying features among users from these channels. The reduction in unit acquisition cost combined with the ARPU growth drove further improvement in ROI which had already achieved a Target greater than 100%. In Q1. The overall user retention remained stable despite increased channel investments 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 acquisition investments with negative roi. Since the ultra low paying users that we proactively abandoned make very limited contribution to the top line, the absence to this group has had a very minimal negative impact on revenue. Instead their absence contribute 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 also evolved to achieve ongoing improvements in our eyes. 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 the cash 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 chat room experience which is popular among MIKO 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 increase the exposure rate of high quality broadcasters to high paying users in our algorithm. On the product side, we introduced new interactive gifts that better facilitate relationship building and paying conversion between users and broadcasters. With the joint efforts of our algorithm and products, we enhanced our traffic monitor monetization efficiency coupled with a seasonal Recovery bus revenue increased 4% from last quarter. Turning to Tian Tan 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%. We further scale back budget 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 over quarter over quarter, which partially offset the decline in user numbers caused by the reduction in marketing spend. In June, Tantan's MAU reached 10.2 million, down 5% from last quarter. As of the end of Q2, Tantan had 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 improvements 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 Pantan's 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 Apipu increased 18% year over year and 8% quarter over quarter which partially inhibited 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 reputation to enhance user authenticity and brand trust. Number two, we focusing 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 mitigated the negative impact of the new version on user matrix and monetization through continuous product fine tuning on user acquisition. Our goal Is to achieve 100% ROI including personnel costs and to eliminate budgets from the underperforming channels. The unit acquisition costs narrowed significantly and ARPU rose slightly compared to last quarter. In Q2, ROI remained stable at a level exceeding 100%. The improvement in organic traffic and in the channel ROI has led to a significant year over year and quarter over quarter growth in Tantan's profitability. In terms of monetization, we mitigated the impact of the product upgrade on paying ratio by restructuring the membership package and refining the operation of core cities and user groups. The differentiated product design and pricing schemes has driven a continuous increase in RP booth 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 period last year. In Q2, overseas revenue maintained its rapid growth momentum driven by the audio and video based social product in the MENA region for SU2 product optimization to the chat room experience boosted both the paying conversion ratio and the paying user count, thereby driving sequential revenue growth from a high base. For Yahaland and Amar, the local teams drove growth in both the number of paying users and IP proof 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 expansion. 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 ARPU and optimizing acquisition cost 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 group from entering an awkward situation where the rapid top line expansion is achieved through bottom line step sacrifice. It's worth to mention that our overseas business is not limited to audio and video based social product in the Mida 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, primarily driven by Tantan International. After taking over last year, the Singapore team reevaluated the brand positioning and product strategy for overseas Chinese and other Asian country users. Taiwan Townhai 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 countdown, international revenue has now stabilized. Moving forward, we will focus on dating and the growth opportunities in overseas Chinese communities and the Southeast Asian market. We plan to take Tantan International as a pilot project to stapling our presence in our overseas dating field, providing users with a more dating brand that facilitates 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 Kathy for the Financial Review. Kathy please.

Kathy - (00:20:45)

Thank you.

UNKNOWN - (00:20:46)

Sig.

Kathy - (00:20:47)

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 RMB, down 3% year on year but up 4% quarter over quarter. Non GAAP net loss was 96.0 million renminbi compared to 449.2 million renminbi 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 WFOE 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 value added services for the second quarter of 2025 was 2.58 billion RMB down 3% year on year but up 4% quarter on quarter. On a user geography basis, PRC mainland Fast revenue was 2.14 billion RMB 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 Momoa business and to a lesser degree a decline in Tantan pain users. The the sequential increase was primarily driven by the recovery from Q1 seasonal weakness. Vast overseas revenue came in at 440.7 million RMB 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 rich 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 2 percentage points from the year ago period. The year over year decrease was due to to three factors. Number one an elevated payout ratio driven by structural revenue shift 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 portion proportion due to geographic mix tilting toward international operations where fee structures are systematically higher compared to domestic business. Non GAAP R and D expenses for the second quarter was 172.0 million renminbi compared to 179.7 million renminbi for the second same period last year representing a 4% decrease year over year. The decrease was attributed to personnel optimization. Non GAAP R and 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 1364 from a year ago. The RD 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 million renminbi 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 and A expenses was 67.5 million renminbi for the second quarter compared to 89.5 million renminbi for THE same quarter last year, both representing 3% of total revenue. Non GAAP operating income was 447.7 million renminbi with a margin of 17.1%, compared with 476.5 million renminbi 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 renminbi for the quarter. In Q2 the company accrued withholding income tax of 578 million renminbi of which 547.9 million renminbi was a special item. 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 WOFEE in Mainland China to its offshore parent company in Hong Kong. This accrual followed a notice received by our WFOE 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 a 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 with retained earnings of Beijing as of March 31, 2025. So from Q2 2025 onwards we will accrue withholding tax rate at 10% for profit generated by our Beijing WO fee 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 hello Group's cash cash equivalents short term deposits, long term deposits and restricted cash totaled 12.39 billion Renminbi compared to 14.73 billion Renminbi as of 12-31-20. The decrease in cash reserves was largely attributable to the repayment of a 1.76 billion renminbi 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. Net 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 10th 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 and A. Ashley, please.

Ashley Jing - (00:31:17)

Thank you. Just before we take the questions, for. Those who can speak Chinese, please ask. Your questions in Chinese first followed by English translation by yourself. Thank you.

Operida - (00:31:29)

Operator.

Operator - (00:31:29)

We're ready to take questions. Please. Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick the handset to ask your question. Your first question comes from Thomas Chong from Jefferies. Please go ahead.

Thomas Chong - Equity Analyst - (00:32:01)

Hello. 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 talk 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.

UNKNOWN - (00:33:52)

Thank you.

Jiang Sichuan - Chief Operating Officer - (00:34:30)

Let me translate this first. So mobile's 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 talks abroad or production of hit music videos. Instead of simply cash rewards, we stimulated 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 these impacts through improved product operations. Currently, momo's overall revenue and profit in the second half of the year 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.

UNKNOWN - (00:36:59)

Thank you.

Jiang Sichuan - Chief Operating Officer - (00:38:11)

Okay, let me translate this so 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 these areas 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. Momo'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 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 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. 1010 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.

Operator - (00:40:52)

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

Leo Jiang - Equity Analyst - (00:41:26)

I transmit myself. 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 ratio. Can management elaborate more details of what measures you have taken? Thank you.

Jiang Sichuan - Chief Operating Officer - (00:41:57)

Thank you. I will take this so the recent Pantone 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 in shows that it feels like they can see more real people on Tantan. However, this improvement has resulted in users swiping less, which has put some pressure on revenue. To adjust this In Q2, we adopted a user classification approach. Specifically, we group user based on whether they have compensation, 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 modeled adjusted their matching rate and paywall design to improve their paying conversion and R people. Additionally, we divided domestic cities into several tiers based on user engagement level and regional consumption capacity. We developed suitable 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 ARPU 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 systems. 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 have 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 upgrade 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.

Operator - (00:45:31)

Ready for the next question please? Thank you. Your next question comes from Jimmy Wang from UBS Please go ahead.

Jimmy Wang - Equity Analyst - (00:46:05)

So let me translate myself. So we've seen like overseas revenue grow by over 70% of a year for two consecutive quarters. So could management please share your views on sustainability of this strong growth and what are your expectations for overseas revenue in the second half? Thank you.

Jiang Sichuan - Chief Operating Officer - (00:46:27)

Thank you for the 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, Sociel has maintained steady growth momentum. The accelerated growth in the first half of the year is mainly driven by continuous breakthrough with Yahala and Amar. Despite the 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 with sacrifice non profit and we are conscious about this risky growth model at the moment. So in Q2 and Q3 we will focus on increasing Apple 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. 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 operation and other overseas dating products that managed by our Singapore team. We have also recently completed the acquisition of the dating app Brands Happen. Although this scale isn't larger, isn't large compared to our overall overseas business, this brand has significant untapped potential in terms of user perception in European market and team capacity capabilities. We believe that this overseas dating brands will become key growth driver for our international revenue in the future. As for the revenue outlook, I will turn it over to Kathy. Okay.

Kathy - (00:49:27)

Sick 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 Social and some of our emerging brands. As Sichuan 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 meet 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 socio 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 group 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 profile by Q4 as ROI optimization take effect and with the contribution from some of the newer brands we expect overseas growth to reaccelerate again. Hopefully that answers your question. Back to Ashley to take more questions.

Ashley Jing - (00:51:42)

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.

Xue Qing Zheng - Equity Analyst - (00:51:51)

Thank you. Your final question comes from Xue Qing Zheng from cicc. Please go ahead. 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 put note if there will be any changes in terms of profit margin in particular regarding the withholding tax issue that Cassie just mentioned in the prepared remarks. Could mention 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.

Kathy - (00:53:11)

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 value added services in the second half primarily due to recent tighten 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, Tatan'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 stabilizing revenue trend on top of significant cost saving 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 the 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 flattish versus 2024. That's the current view of mine. Turning. To margins on the gross margin line, there are mixed forces that sometimes oppress 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 1 to 2 percentage point increase in overall payout on MOMO. Second, as the overseas revenue contribution becomes increasingly meaningful, makeshift across businesses could swing gross 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 value added services space in China, we now expect 2025 gross margin to land closer to to the lower end of that range. So that's for gross margin below the gross margin line. R and D will trend lower in absolute dollar 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 are launching in the second half, especially in Q4. At the operating margin level last quarter we guided for 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 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 WFOE 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 arrangement that we have applied in prior periods. Actually, from April 2025 to. I'm sorry, from April 2024 to April 2025, our tax filings with 5% preferential dividend tax rate 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 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, it's our belief and our understanding that the latest scrutiny that hello Group experience 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.

Ashley Jing - (01:01:30)

Yeah, I think time's up. So let's call your day and thank you for joining us today and we'll see you next quarter.

Operator - (01:01:38)

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.

UNKNOWN - (01:02:46)

Thank you.