Hello Group Stock

Ladies and gentlemen, thank you for standing by, and welcome to Hello Group's Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

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 2026 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; Mr. Wen Jianhua, 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 Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict 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. For the 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 take any further obligation to update any forward-looking statement as a result of new information due to events or otherwise, except as required under law.

I will now pass the call over to our COO, Mr. Wen Jianhua. Jianhua, please.

Okay. [Foreign Language]

[Interpreted] Hello, everyone. Thank you for joining today's call. The group maintained steady business momentum in Q2. On the domestic side, Momo continued to preserve the healthy functioning of our cash cow business through product innovation and refined operations. While Tantan focused on AI capability building to improve user experience and monetization efficiency. On the overseas side, the synergy across our diversified product portfolio became increasingly evident.

Next, I'll walk you through the key updates.

[Foreign Language]

[Interpreted] Starting with the financials for Q2 '26, total group revenue was RMB 2.49 billion, down 5% year-over-year, but up 4% quarter-over-quarter. Domestic revenue reached RMB 1.81 billion, down 17% year-over-year, but up 1% quarter-over-quarter. Overseas revenue was RMB 673 million, up 52% year-over-year and 13% quarter-over-quarter. Overseas revenue accounted for 27% of total revenue compared to 17% in the same period last year. Adjusted operating income was RMB 276 million with a margin of 11%.

[Foreign Language]

[Interpreted] Our 2026 priorities continue along 3 main tracks. For Momo, the goal is to ensure stable sustained productivity of our cash cow business. For Tantan, to continue exploring a dating experience and an efficient business model tailored for Asian users. And for our new businesses to deepen overseas presence, enrich our brand portfolio and build a long-term growth engine.

Next, I'll walk you through each.

[Foreign Language]

[Interpreted] Let me start with Momo. On the user side, a year of user-oriented product iteration has effectively lifted platform engagement, combined with the sequential recovery from the seasonal low inorganic traffic, this drove a modest increase in Momo's overall user base. Building on this uptick in the overall scale, our audio and video small-ticket scenarios run themed operational events around the World Cup and key seasonal occasions, driving paying users up 200,000 quarter-over-quarter to 3.9 million.

[Foreign Language]

[Interpreted] On the product side, not focused on refining our deep tech matching strategy, precisely paring users with a high intent to chat, which had a positive effect on engagement, retention and overall user scale. AI chat assistants trains its models on real user behavior data to deepen its understanding of user preferences, driving steady growth in future adoption as well as the reply rate in AI greetings. This has both supported long-term retention and user base scale and open up new revenue scenarios. This quarter, we also began [ grade ] testing [indiscernible], which has AI browse user portals to identify common interest, complete on initial screening of potential matches and automatically generate a personalized ice breaker message, further improving matching efficiency and connection success rate.

[Foreign Language]

[Interpreted] On user acquisition, we run a holdout experiment on channel spend for dormant user reactivation, aiming to test whether attribution [indiscernible] in our channel data were leading to inefficiencies in these re-engagement efforts. The results show that there is indeed room for continued optimization in our channel investments, and we are confident we can maintain our current platform scale and revenue with less spend. In Q3, we will continue to improve acquisition efficiency based on these findings.

[Foreign Language]

[Interpreted] turning to Momo's commercial performance. In Q2, Momo's VAS revenue was RMB 1.54 billion, down 16% year-over-year but up 2% quarter-over-quarter. The year-over-year decline was mainly driven by 2 factors. Number one, continued tightening on the tax front, which has had a sustained [indiscernible] negative impact on our agencies and broadcasters. Number two, softness in consumer spending due to macro.

Sequential growth came in weaker than in previous years, mainly because since April, some agencies in the audio scenario scaled by operations due to tax-related pressures, which weighted on revenue. In late May, we rolled out targeted subsidies to ease the operating pressure on these agencies, which drove a quick recovery in revenue. In Q2, our overall VAS revenue share and ratio rose by a low single-digit percentage points, both year-over-year and quarter-over-quarter, mainly because we moderately raised the revenue sharing ratio and subsidy support for certain core agencies in the audio scenarios to ease the supply side financial pressure through the tax compliance process, keeping the supply side stable at a manageable cost.

On the product and operations side, we stayed with our approach of tier monetization and use case innovation. For high-value users, we selected top grossing broadcasters and created AI-generated [indiscernible] to custom gifts for them, which effectively refreshed paying interest among our top spenders.

For mid-tier users, we capitalized on World Cup-related traffic by rolling out interactive game play such as match predictions, which lifted engagement and user stickiness. At the long tail end, we [indiscernible] a moment's boost feature, letting users pay to increase the exposure of their post. This not only produced positive operating data, but also successfully validated a new small ticket payment scenario. This multipronged refined operating approach provided solid support for the stability of our overall revenue base amid the macro downturn.

[Foreign Language]

[Interpreted] Now let's turn to Tantan. As of the end of Q2, Tantan had 0.5 million paying users, a modest decrease of 40,000 quarter-over-quarter, mainly due to pressure on paying conversion from Alipay's adjustments to its auto renewal deduction rules.

On the user base, average domestic user scale was stable with a slight uptick in Q2, marking the first stabilization in our user base since we began scaling back marketing spend in early 2022. New user growth stayed under year-over-year pressure amid the lingering effects of lower marketing spend. But on the product side, refined targeting strategies for different user segments improved matching efficiency, lifting retention among both male and female users to varying degrees and contributing positively to overall user base stability.

[Foreign Language]

[Interpreted] In Q2, Tantan's domestic business focused its core efforts on exploring AI-driven improvements to the user experience. Among this, AI icebreaker and AI chat assistant delivered encouraging early results. The team strengthened AI's semantic understanding of users' photos, which feed Tantan's users preference for expressing themselves through images rather than text and use the photo content to generate personalized opening lines, which had a particularly strong pull on female user retention.

To address the pain point of female users receiving too many matches, the new AI [indiscernible] matching feature scans through a large volume of matches to surface the best people to chat with, effectively reducing decision fatigue. In addition, AI one registration and profile optimization, process the user information in bulk with precision, which not only lowers the barrier to onboarding, but also laid a high-quality data foundation for building an AI [ engine ] social manager down the road and enabling deeper, more curated matching and recommendations.

[Foreign Language]

[Interpreted] On user acquisition, external factors pushed up unit acquisition costs year-over-year. And combined with narrowed channel budget, this reduced the number of users acquired from a year ago. However, because organic traffic retains better and drops more slowly than channel traffic, this partially offset the pressure on the overall user base from the reduction in paid acquisition.

Channel ROI declined quarter-over-quarter due to rising unit costs and the impact of Alipay's policy change on ARPPU, but Tantan's overall ROI remained at a healthy level, above 100% payback.

[Foreign Language]

[Interpreted] On the financial side, in Q2, Tantan generated total revenue of RMB 156 million, down 18% year-over-year and 3% quarter-over-quarter. The revenue decline was mainly due to the temporary pressure on membership renewals from Alipay's domestic channel policy adjustments.

In response, we took several measures. First, we launched a lifetime membership product and encouraged the short-cycle subscribers to convert to longer cycle plans, reducing the volatility risk tied to the renewal frequency. Second, we completed an upgrade to our payment infrastructure, integrating Douyin Pay and WeChat Pay to meaningfully reduce the reliance on a single channel. At the same time, we optimized the matching strategy behind Flash Chat, driving revenue growth in that scenario against the broader trend.

[Foreign Language]

[Interpreted] Lastly, our new businesses. In Q2, total overseas revenue was RMB 673 million, up 52% year-over-year and 13% quarter-over-quarter. Overseas revenue as a share of group revenue rose 10 percentage points year-over-year to 27%. The acceleration in year-over-year growth was mainly driven by strong momentum from our new MENA products as well as the consolidation of overseas dating products acquired last year.

Sequentially, overseas revenue grew at a double-digit rate, mainly reflecting the natural recovery in the MENA region following the seasonal Ramadan low, along with new gamified features on the product side and same-day events tied to seasonal occasions and the World Cup on the operational side, both of which lifted user engagement and paying propensity and drove revenue growth across the board.

Within the portfolio, SoulChill's progress moderated relative to our initial time line due to external factors, including its removal from the Turkish App Store and the ongoing geopolitical tension in the Middle East since the beginning of the year. However, the product is gradually emerging from its Q1 trough and is showing a clear recovery trend. Notably, the 2 newer products in MENA demonstrated strong growth momentum with their combined revenue in the second quarter already approaching the scale of SoulChill. And alongside this high growth, profitability has also continued to improve.

Yaahlan achieved a net income breakeven for the first time in Q2. Amar, having turned marginal contribution positive earlier this year, has seen its net loss continue to narrow quickly on the back of a rapid revenue growth and operating leverage. This marks a new stage of our MENA strategy moving from a social-driven single product model to a multiproduct matrix working in concert.

[Foreign Language]

[Interpreted] On the other hand, our developed market dating business has maintained high-quality expansion. In the first half of the year, Happn improved paid conversion and ARPPU through iterating on its membership benefit and precision targeting, driving continued revenue growth both year-over-year and quarter-over-quarter. Building on strong position in its core European markets, Happn begun exploring neighboring markets starting early this year and has seen encouraging early results. The current user and revenue performance in these new markets fully validates their long-term growth potential and lays a solid foundation for the next phase of scaled expansion.

[Foreign Language]

[Interpreted] Overall, in the first half of the year, while our domestic business continued to weather external headwinds, our overseas product portfolio has shifted from being supported by a single product to achieving balanced diversified growth. This validates the effectiveness of our sustained investment in globalization over the past several years and has given the group a healthier revenue structure and stronger resilience.

In the second half of the year, we'll continue to strengthen the foundation of our domestic cash cow business through product innovation and refined operations while advancing the scaling of our overseas business so as to create long-term value for both users and shareholders.

[Foreign Language]

[Interpreted] This concludes my remarks today. Now let me pass the call over to Cathy for the financial review. Cathy, please.

Thanks, Jianhua and Ashley. 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 of 2026 was RMB 2.49 billion, down 5% year-on-year but up 4% quarter-on-quarter. Non-GAAP net income attributable to the shareholders of the company was RMB 273.9 million compared to a net loss of RMB 96 million in the same period of 2025, and RMB 328.8 million in the previous quarter.

Looking into the key revenue items for Q2. Total revenue from value-added services for the second quarter of 2026 was RMB 2.44 billion, down 5% year-on-year, but up 4% quarter-on-quarter. On a geographic basis, PRC Mainland value-added services revenue was RMB 1.77 billion, down 17% year-over-year. The decrease was primarily due to continuous tax scrutiny on some of Momo's agencies, combined with weak consumer sentiment due to broader macro pressures and, to a lesser degree, a decline in paying users on Tantan.

PRC Mainland VAS revenue for Q2 '26 was up 1% quarter-over-quarter due to recovery from low seasonality. VAS overseas revenue for the second quarter of 2026 reached [ RMB 664.9 million, ] up 51% year-over-year, driven by strong growth momentum from our new MENA product as well as the consolidation of overseas dating products acquired last year. Sequentially, overseas VAS revenue rose 12%, driven by a recovery in the MENA region after its seasonal low alongside product and operational initiatives.

Turning to cost and expenses. Non-GAAP cost of revenue for the second quarter of 2026 was RMB 1.6 billion, same as the year ago period. Non-GAAP gross margin for the quarter was 35.8% compared to 38.8% from year ago period. Q2 cost of revenue included RMB 56.8 million in film production expenses. Excluding this item, gross profit margin would have been 38.1%, a decline of less than 1 percentage point versus Q2 last year. The decrease was primarily due to payment channel costs rising as a percentage of revenue. This resulted from a geographic mix shift towards international operations, which carry higher payment channel fee structures compared with our domestic businesses.

Although Momo raised agency payout ratio to mitigate impact from tax scrutiny, improved gross margins in the MENA region, coupled with larger revenue contribution from higher-margin overseas dating products offset the margin pressure stemming from Momo's operations. As a result, total revenue share costs as a percentage of revenue remained stable from the year ago period.

Non-GAAP R&D expenses for the second quarter was RMB 171.3 million compared to RMB 172.0 million for the same period last year. Non-GAAP R&D expenses as a percentage of revenue was 7%, same as Q2 last year. We ended the quarter with 1,399 total employees compared to 1,268 from a year ago. The R&D personnel as a percentage of total employees for the group was 56% compared with 58% from Q2 last year. Non-GAAP sales and marketing expenses for the second quarter was RMB 380.4 million compared to RMB 339.7 million for the same period last year, representing a 15% and 13% of total revenue, respectively. The year-over-year increase in sales and marketing expenses was mainly attributable to a greater marketing spend on our new overseas app. This increase was partly offset by ongoing cost controls in Mainland China operations, both Momo and Tantan cut marketing spend, while SoulChill temporary pulled back on channel investments amid external challenges.

Non-GAAP G&A expenses was RMB 75.1 million for the second quarter compared to RMB 67.5 million for the same period last year. The increase was primarily driven by RMB 11 million in exchange gains on euro-dominated deposits stemming from currency fluctuations in Q2 last year compared with a RMB 1.8 million exchange loss in the current quarter. Non-GAAP G&A expenses as a percentage of revenue was 3%, largely unchanged from Q2 last year.

Non-GAAP operating income was RMB 276.1 million, representing a margin of 11.1% compared with RMB 447.7 million and a margin of 17.1% from Q2 '25. As noted earlier, non-GAAP cost of revenue included film production-related expenses. Excluding these items, non-GAAP operating income from our recurring business would have been RMB 332.9 million with a margin of 13.4%. Non-GAAP OpEx as a percentage of total revenue was 25%, an increase from 22% from the year ago period.

Now briefly on income tax expenses. Non-GAAP income tax expenses was RMB 71.2 million for the quarter with an effective tax rate of 23%. In Q2, the company accrued withholding income tax of RMB 18.4 million, which is 10% of undistributed profit generated by our [indiscernible]. Without the withholding tax, our estimated non-GAAP effective tax rate was around 17% in the second quarter.

Now turning to balance sheet and cash flow items. As of June 30, 2026, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments and restricted cash totaled RMB 8.54 billion compared to RMB 8.68 billion as of December 31, 2025. Net cash provided by operating activities in the second quarter of 2026 was RMB 642.3 million. The difference between operating net cash and non-GAAP net income was mainly due to the fact that a substantial amount of Q1 receivables were collected in Q2. Accrued interest and some noncash items, including film production costs and withholding tax.

Lastly, on business outlook. We estimated our third quarter revenue to come in the range from RMB 2.4 billion to RMB 2.5 billion, representing a decrease of 9.4% to 5.7% year-over-year. This is based on the assumption that at midpoint on a year-over-year basis, revenue from our Mainland China business will decline by high teens percentage-wise, while overseas revenue is expected to grow by high 30s percentage wise.

Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to change.

That concluded our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please. Thanks.

[Operator Instructions]. Operator, we're ready for questions.

[Operator Instructions] Your first question comes from Thomas Chong with Jefferies.

[Foreign Language] Let me translate myself. In our last earnings call, management talked about the decline in domestic revenue in the second half would be notably leveling versus the first half. However, when we look at the guidance, it seems the decline in Q3 is slightly widening versus the first half of the year. May we know the key reason for the difference? Is it more due to the changes in external macro environment or adjustment about our operational strategy?

And in response to the situation, what specific measures does the company have at the moment? Can management provide more color about the financial -- about the domestic revenue and expenses in the second half?

[Foreign Language]

[Interpreted] Our revised outlook for the domestic business is mainly based on some new trends that we've seen in the Momo live streaming revenue since entering the second half of the year. The data shows that the revenue pressure is concentrated mainly in consumption downgrading among high-spending paying users. Although the vast majority of these users in this cohort remain active on our platform, but they've become more cautious about spending and average ARPPU has declined significantly.

Based on our targeted interviews to those cohort of users by our VIP team, we found out that the core driver behind this is weaker wealth expectations among high net worth individuals amid macro volatility, which has dampened spending on social entertainment. But by contrast, mid-tier and long-tail users as well as the broadcasters from the supply side has remained relatively stable.

[Foreign Language]

[Interpreted] Based on this view, we will take a tiered operating approach, starting with top-tier users. We will make full use of Momo's strength as a social platform, focusing on deepening social connections rather than simply pushing more spending. And specifically, on the one hand, we will roll out light-weighted social interaction focused features and organize official offline events for hyping users, further strengthening this group's stickiness to the platform and upgrading our VIP exclusive services.

And on the other hand, we will continue to provide high-quality broadcasters with exclusive resources, such as overseas [indiscernible] and short drama production to constantly refresh content supply and sustain high-value users' ongoing interest and engagement around top broadcasters.

[Foreign Language]

[Interpreted] For mid-tier and long-tail users, will focus on low barrier high-retention scenarios such as audio-based interactive features and social mini games, using richer use case offering to stabilize the revenue base generated by this user group.

And for the financial figures, I will hand it over to Cathy.

Sure. Let me give you a quick update on how we currently think about the domestic business in the second half of 2026. As you may see, our Q3 guidance implies roughly a high-teens year-over-year decline for the domestic business, widening from Q2's 17% year-over-year decline rate. And that underperforms our earlier expectation that in the second half, domestic business could see Y-o-Y decline rate narrowing down from first half.

The key reason Q3 is coming in below our quarter ago expectation is that as [ Tang Zong ] mentioned just now, the domestic business has been facing greater pressure than we anticipated, particularly on user spending sentiment among the very top cohort users in live streaming [ showroom. ].

With regards to the trajectory from Q3 onwards, as in the previous quarters, I would still frame our view around 3 areas that we closely monitor. First is overall spending sentiment, what we've observed since late Q2 is a meaningful reduction in spending from the top cohort of users. These are the users who historically contribute a disproportionate amount of revenue in the [ showrooms. ] And many of them spend in the hundreds of thousands renminbi on a monthly basis.

In Q3, the reduction in spending from this top of pyramid users became more pronounced. Our current assessment is that this reflects continued pressure on the financial outlook of the so-called high net worth users, which is, in turn, affecting their discretionary and entertainment spending. So from a macro spending sentiment perspective, we may continue to see a headwind as we move into Q4.

And the second factor is the regulatory environment. At this point, we are not seeing any significant incremental regulatory pressure, and we expect the environment to remain relatively stable. So this is not a major driver of the change in our outlook.

The third area and one where we continue to see encouraging signs is the underlying health of the platforms. Our DAU and engagement metrics remain relatively resilient, and importantly, Momo paying users -- Momo paying user base in Q2 increased meaningfully from Q1. This is certainly -- there is certainly some seasonality in that sequential improvement. However, we believe it also reflects a relatively healthy and resilient user ecosystem.

So in other words, the weakness we're seeing in revenue is not primarily a function of users leaving the platforms or deterioration in engagement. It's much more concentrated in the spending behavior of the highest net worth users. These users are still active and still paying. They're simply spending less.

So if you put these factors together, I would say the biggest change in our view versus the beginning of the year -- versus at the beginning of the year is the macro spending environment, particularly among the top cohort of users. For that reason, our earlier expectation for a meaningful narrowing of the year-over-year decline in the second half should be adjusted downward.

At this point, given the uncertainty around the macro environment, I don't think it would be appropriate for us to put a specific Q4 number out there. What we can control is continuing to strengthen the fundamentals of both Momo and Tantan, improving user experience and engagement across the platform and make the business more efficient.

On the cost side, we do see opportunities to further optimize our operating expenses. This includes continued discipline around personnel costs. As Jianhua mentioned, in his prepared remarks, additional opportunities to optimize sales and marketing spending in the domestic business.

So while the revenue environment is more challenging than we anticipated at the beginning of the year, we are taking a more balanced approach, remaining focused on improving the underlying health of the platforms, while at the same time, actively managing the cost structure. This should allow us to mitigate some of the pressure on the bottom line, even in a more challenging revenue environment.

Now back to Ashley for more questions.

Operator, next question please.

Your next question comes from Xueqing Zhang with CICC.

[Foreign Language] My question is about the overseas business. Management mentioned that combined revenue by Yaahlan and Amar in the same quarter was already close to that of SoulChill, while their profitability continued to improve. As the revenue mix of the social entertainment business in the MENA region becomes more diversified, can we expect the company's performance in the region to become more stable and resilient going forward? And how will the structural shift affect the overall margin profile of the MENA business? And can management also share whether there has been any update to the company's full year outlook for overseas business.

[Foreign Language]

[Interpreted] Based on the current momentum, the combined revenue of our 2 new MENA products will surpass SoulChill in Q3. Both products are still maintaining healthy strong growth so we are confident that we can grow them into social products of the scale comparable to SoulChill.

[Foreign Language]

[Interpreted] In addition, these 3 products differ in gameplay, target of user base and regional focus, which will make the group's MENA business more diversified and strengthen both our resilience to external risks and our agility in capturing growth opportunities. Once the new products are established, even if one of them comes under short-term pressure from external regulatory or geopolitical factors, the others can still support the stability of overall regional revenue. We also believe the market for this type of audio, video social products is unlimited to MENA. Our diversified product portfolio gives us a stronger capability to expand into other regions than a single product would.

[Foreign Language]

[Interpreted] On profitability, both Yaahlan and Amar are improving quickly. Yaahlan already crossed breakeven, and Amar likely still around half a year away. But both products gross margin and contribution margin are improving rapidly and steadily. We believe both products will contribute to group's profit next year.

As for our overseas revenue outlook, I will leave it to Cathy.

Before giving a quantitative outlook, let me briefly walk through the 3 key components of the overseas business. First, on SoulChill, our flagship product in the MENA region, the business has underperformed our original expectation somewhat. There were 2 main factors behind that. One was the removal of the app from the App Store in Turkey earlier this year. And the other was the regional conflict that started in April, which had an impact on the operating environment in parts of the Middle East.

The encouraging part is that, as you can see from Q2 results, both revenue and traffic for SoulChill have already recovered from the low point in Q1. We are continuing to see gradual sequential improvement as we move through Q3 and hopefully, Q4 as well. So SoulChill is somewhat below our initial expectation for the year, but the trajectory has been improving over the past couple of quarters.

The second piece is Yaahlan and Amar, as Tang Zong and Jianhua mentioned, the outperformance of these 2 businesses has partially compensated for the shortfall in SoulChill. In Q3, the combined revenue from Yaahlan and Amar has already exceeded that of SoulChill. Both businesses are still growing at a rapid pace while we are also seeing a meaningful improvement in their bottom line performance. So we believe these 2 businesses can continue to make progress and become increasingly meaningful contributors to both the top line and bottom line of the overseas business going forward.

The third piece is the dating and membership subscription businesses, which continue to perform well. Some of the acquired brands, including Happn have been making good progress in new markets, including Korea, Taiwan and U.K. At the same time, we are taking a fairly disciplined approach to investment in these new markets.

We do see opportunities to increase marketing investment to accelerate top line growth. But we also want to maintain a healthy bottom line for the newly acquired dating business. More importantly, we want to make sure that we are building the ecosystem in these markets in a sustainable way rather than simply pushing for short-term user or revenue growth. So there is naturally a balance between the pace of top line expansion and the level of investments that we are willing to pour in within a relatively short time frame. In other words, we'd rather take it right, then take it fast.

So if you wrap up these -- if you wrap these all up and try to look at the takeaway as a whole, I would say that SoulChill perhaps moved a little bit slower than we expected a quarter ago. We do have the potential to maybe compensated by moving faster on expanding the other 2 MENA apps and the dating app. But given that we wanted to balance top line growth and bottom line target, we probably won't push the gas pedal harder than we previously planned.

Therefore, my current view is that the original RMB 3 billion target for overseas revenue for 2026 at this point looks a little bit of a stretch. We'd rather take RMB 100 million or RMB 200 million down from that target.

Maybe back to Ashley to take the last question.

Yes. So in the interest of time, let's just take one last question before we close the line. Operator, we're ready.

Your next question comes from Jenny Yuan with UBS.

[Foreign Language] My question is on the profit outlook. As management [indiscernible] weaker revenue outlook for domestic business in the second half, how can we think about the impact on the group's overall profitability and the earnings performance going forward?

Okay. I'll take that question. Profitability, maybe let me start with the group top line first because that's the first area where our view has changed. As I mentioned back in June during our Q1 conference call, at that time, we expected the group revenue to decline slightly year-over-year, perhaps by a couple of percentage points.

Given the additional pressure we are seeing in the domestic business in the second half, we currently expect the full year group's revenue decline to be somewhat larger, maybe to mid-single-digit range. The second factor affecting profitability is the investment in the 2 movies. With both movies now released, we've recognized roughly somewhere around RMB 60 million of additional losses in Q2. That obviously creates some incremental pressure on the full year bottom line relative to our earlier expectations.

Having said that, we continue to see opportunities to offset some of this pressure through cost management and improving operating efficiency. In particular, we are looking at further optimization of personnel costs as well as sales and marketing spending, especially in the domestic businesses. So putting these factors together, the additional pressure on the top line does make it more challenging to achieve our original margin target, which was I think we pointed towards a low teens adjusted operating margin for 2026. But at this point, we still believe that, that margin target remains achievable, provided that we execute well on the cost side and continue to improve operating efficiency.

Back to Ashley to wrap up the call.

I think that's all the time we have. And thank you for joining us today, and we'll see you next quarter.

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

Ladies and gentlemen, thank you for standing by, and welcome to Hello Group's First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 First Quarter 2026 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, COO of the company; and Ms. Peng Hui, CFO of the company, who 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 Securities Litigation Reform Act of 1995.

Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known, unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control. which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law.

I will now pass the call over to our COO, Ms. Zhang Sichuan. Ms. Zhang, please?

Thank you, Ashley. Hello, everyone. Thank you for joining today's call. The group maintained steady business momentum in Q1 guided by the strategic priorities that last year. Our domestic business a healthy through focused product innovation and refined operations despite external pressures leveraging the synergy of a diversified product portfolio, our overseas business has remained a positive trend. Looking ahead, we have full confidence in each business line to continue to advance along the strategic road map in 2026.

Now I'll walk you through the key updates. Starting with the financials. For Q1 '26, total group revenue was RMB 2.39 billion, down 5% year-over-year. Domestic revenue reached RMB 1.79 billion, down 15% year-over-year. Overseas revenue was RMB 597 million, up 44% year-over-year. Overseas revenue accounted for 25% compared to 16% in the same period last year. Adjusted operating income was RMB 349 million, up 1% year-over-year with a margin of 14.6%. Building on the strategic direction from 2025, our '26 priorities continue along 3 main tracks. For Momo, the growth is still ensuring stable sustained productivity of our cash cow business. For Tantan, to continue exploring updating experience and efficient business model tailored for Asian users. And for our new business, to different overseas presents enrich our brand portfolio and build a long-term growth engine.

Let me walk you through each. Starting with Momo. On the product side, our key focus in recent years has been to optimize user experience and stabilize our user base. This year, we have continued to refine the track experience. Our network feature improves connection [indiscernible] by analyzing users historical check patterns to optimize matching algorithm. Driving sustained growth in 2A and [indiscernible]. In real-time check scenario, building on a steady ramp-up of voice features, we have also introduced video features to enrich our portfolio of instant interactions. The combined upgrades in Argo recommendation and product experience has lowered the barrier for users to [indiscernible]. This is the main driver behind the steady improvement in retention among existing users. In tenure, we undertook a number of meaningful installations in leveraging AI to improve users' social efficiency with encouraging initial results.

For example, our AI buildings and AI chat assist features improve the female users experience. This drove higher [indiscernible] from male users and more in-depth conversation overall. In Q1, the product team explored AI-driven innovations such as voice [indiscernible], guiding users complete voice profiles. Also generating voice content and releasing it on to the platform in a message in the [indiscernible] format to spot users desire to connect. For user acquisition, China ROI has remained fully profitable since the beginning of the year. Ongoing audio room, game plan updates and better channel conversions lifted payment intent among net and small spending users. This drove study or TV growth and channel ROI improved model quarter-over-quarter.

Overall, acquisition spend continue the refined disciplined approach narrowing slightly from last quarter. This is worth noting that Q1 was affected by the Chinese New Year as some users shifted their [indiscernible] offline gathering and close friends and family. This temporary pullback platform activity and paying scale with Momo's paying users decreasing by RMB 200,000 quarter-over-quarter to RMB 3.7 million. That's thanks to a year of product refinement focus on chat experience, organic traffic grew compared to last year and retention among existing users improved slightly. Turning to Chinese New Year, the team ran targeted operational events at a low point of the cycle, narrowing the decline in user activities compared to last half holidays. As a result, the post-holiday recovery was meaningfully better than in the same period last year. This set a solid foundation for stabilizing our user base over the full year.

Turning to more commercial performance. In Q1, Momo's glass revenue was RMB 1.52 billion, down 15% year-over-year. and 9% quarter-over-quarter. The year-over-year decline mainly reflects the ongoing impact of the new tax regulations and stricter local enforcement that came into effect in the second half of '25. The motivation of some high grossing agencies and broadcasters is still recovering. The [indiscernible] decline was largely seasonal, driven by the Chinese New Year alongside persistently soft consumer spending sentiment. In response to these external shift, the teams continue to direct gameplay innovation and operational resources towards mid-tier and long-tail users giving revenue from audio scenarios and social games such as parking was relatively resilient. This has partially absorbed the external pressure on overall revenue.

On the product and operations side, our live streaming business organized a series of user-oriented events during the Chinese New Year effectively cushioning the demotion of online behavior from the long holiday. As a result, the post-holiday recovery in key operational metrics, including user engagement paying conversion rate and streamer return rate was meaningfully stronger than in the same period last year. At the same time, we continue to introduce and selectively support high-quality talent streamer, lifting organic revenue through content quality improvements. In audio scenario, we roll out the new PA game play to further motivate users to give one another.

With some mid-tier and non-car broadcasters and agencies on our platform facing ongoing profit pressure during the test combining process, we have rolled out new incentive base revenue sharing policy. This has decided to enable the quality performance to deliver greater value to the platform while ensuring their sale of the mixed stable income in turn.

Now let's turn to Tantan. As of the end of Q1, Tantan had 0.6 million paying users a modest decrease of 30,000 quarter-over-quarter. This decline was driven by 2 factors. First, the carryover from ongoing MAU decline and second, Alipay changes through its ultra renewal paying rules, billing rules, which placed short-term pressure on our membership conversion. Under the continued factor of our strategic marketing cuts, content user base remain on the downward trajectory through so the magnitude of the client was has narrowed meaningfully through algorithm innovation and refined operations, engagement and retention among younger users show slight improvement contributing positive to user base stability.

On the product side, the team optimized recommendation strategies in our core wet-based scenario. For example, we introduced her restrictions on female users metrics, allowing only [indiscernible] or upward matching a benefit for female users, we will show expectations. This drove a near 3 percentage point increase in average swipe or female user [indiscernible] improving the retention. On new scenario in portion, we piloted MAC-based [indiscernible] and AI chat assist features. Our user acquisition alter the year-over-year reduction in China investment led to a lower required volume. The meaningful narrowing the unit acquisition costs, partially [indiscernible]

Additionally, because organic traffic outperformed channel traffic on both user engagement and retention, the overall decline in our user base has far smaller than the channel-driven decline implied by our strategic up. Sequentially, both spend and user acquisition costs narrowed by various degrees. So the China volume decline was relatively limited. While Alipay will policy created near-term ARPU pressure. Channel [indiscernible] was sustained well above 100% throughout the quarter. On the financial side in Q1, Tantan's domestic business generated RMB 125 million in revenue, down 25% year-over-year and 8% quarter-over-quarter.

The primary driver remains MAU construction leading the fewer paying users compounded by the short-term impact of Alipay's policy adjustments on [indiscernible] payments. On monetization, the team unbundled membership issues into [indiscernible] card offerings while enriching fresh chat game plan and stepping up in app promotion to ease top line pressure. On profitability, thanks to ongoing cost in channel investment and personnel costs Net profit grew significantly year-over-year.

Lastly, our new businesses. Our 2026 gold carries forward from '25 to deepen our overseas presence in which our brand portfolio and our long-term growth engine. In Q1, overseas revenue totaled RMB 597 million, up 44% year-over-year with a slight 2% sequential decline. Overseas now accounted for 25% of group revenue compared to 16% in the same period last year. The sequential softness was mainly due to some external challenges so to pace during the quarter, which rated on our overseas business overall. Excluding SoC, the rest of our overseas businesses continue to deliver healthy growth this quarter. Further validating the value of diversified product portfolio in this sensing risk from a single product volatility.

Our 2 new product in [indiscernible] continue their rapid growth trajectory with both delivering triple-digit revenue growth year-over-year in Q1, driven by continuously improving localized operations a more precise scraps of local user preferences and sustain game plan innovation, both products of concurrent improvement in revenue and profit. This quarter, Yahoo is approaching net income breakeven, and Amar achieved positive marginal contribution for the first time. This is a significant milestone making our shift in MENA from a social dominated model to a multiproduct portfolio. Beyond our audio and video social products in MENA region, our dating business focused on developed markets is another important pillar of our overseas footprint, also deliver satisfying progress this quarter.

Tantan International, met by our Singapore team completed a full upgrade of product positioning and branding over the past year. And in second half of '25, began migrating from share domestic international app built to [indiscernible] overseas. The migration was completed in Q1 with 99% of paying users successfully transferred, minimizing the revenue impact of the version speed. Starting in Q2. The team's focus is try to further optimizing product experience and improving monetization efficiency separately, happen, which down the group last year has continued a steady healthy growth trajectory since the beginning of this year. Happens user base has remained relatively stable over the past year and both sequential and the year -- our year-over-year revenue growth came mainly from improvements in paid conversion rate and people, reflecting greater efficiencies in operating the existing user base.

In Q1, we began testing happens entry into new markets, laying the foundation for the brand's mid- to long-term growth. As a voluntary newer segment for our overseas funds, we remain confident in the dating businesses, continued release of growth potential in 2006. This concludes my remarks.

Now let me pass the call to Cathy for the financial review. Cathy, please.

Thanks, Sic. Hello, everyone. Thank you for joining our conference call today. Now let me take you through the financial review. Total revenue for the first quarter 2026 was RMB 2.39 million, down 5% year-on-year and 7% quarter-over-quarter. Non-GAAP net income attributable to the shareholders of the company was RMB 288 million compared to RMB 403.8 million in the same period of 2025 and RMB 281.3 million in the previous quarter. Looking into the key revenue items for Q1. Total revenue for value-added services for the first quarter of 2026 was RMB 2.35 billion, down 6% year-on-year and 7% quarter-on-quarter.

On a geographic basis, PRC Mainland value-added service revenue was RMB 1.76 billion, down 15% year-over-year and 9% quarter-over-quarter. The decrease was primarily due to heightened tax scrutiny on the agencies for Momo's Entertainment business, combined with softened consumer sentiment amid broader macro pressures and, to a lesser degree, a decline in paying users on Tantan. BaaS overseas revenue reached RMB 593.7 million, up 44% year-over-year driven by the rapid expansion of our diversified product portfolio. Overseas VAS revenue decreased slightly by 2% sequentially due to seasonal factors, namely Ramadan as well as some external challenges in MENA area during the quarter.

Turning to cost and expenses. Non-GAAP cost of revenue for the first quarter of 2026 was RMB 1.46 billion, compared to RMB 1.57 billion for the same period last year. Non-GAAP gross margin for the quarter was 38.8% compared to 37.9% from year ago period. Gross profit margin, or GPM, in Q1 '26 rose by around 1 percentage point Y-o-Y. The increase was primarily driven by improved margins in MENA products after lowering the revenue sharing ratio to promote quality growth, together with a greater revenue mix from higher-margin overseas staining products.

This was partially offset by a decline in Momo's GPM resulted from increased payout ratio to agencies in order to cushion the impact from the tax scrutiny. Non-GAAP R&D expenses for the first quarter was RMB 165.2 million compared to RMB 185.9 million for the same period last year, representing an 11% decrease Y-o-Y. The decrease was due to overall labor cost savings from the optimization of our personnel structure. Non-GAAP R&D expenses as a percentage of revenue was 7% same as Q1 last year. We ended the quarter with 1,396 total employees compared to 1,336 from a year ago. The R&D personnel as a percentage of total employees for the group was 56% compared with 58% from Q1 last year.

Non-GAAP sales and marketing expenses for the first quarter was RMB 335.4 million compared to RMB 22.1 million for the same period last year, representing a 14% and 13% of total revenue, respectively. The year-over-year increase in sales and marketing expenses was mainly driven by increased marketing investments in our new overseas apps. This was partially offset by continued cost control in our PRC Mainland operations as both Momo and Tantan reduced marketing spend while Soulchill also temporarily scaled back channel investments amid external challenges. Non-GAAP G&A expenses was RMB 89.4 million for the first quarter compared to RMB 114.8 million for the same period last year, representing a 4% and 5% of total revenue, respectively.

The decrease in G&A expenses was primarily attributable to a high base effect in Q1 '25, resulting from a self-inspection related to tax matters. Non-GAAP operating income was RMB 349.2 million representing a margin of 14.6% compared with RMB 345.3 million and a margin of 13.7% from Q1 '25. The increase was driven by improvement in GP non-GAAP OpEx as a percentage of total revenue stood at 25%, unchanged from the year ago period.

Now briefly on income tax expenses. Total non-GAAP income tax expenses was RMB 81.5 million for the quarter with an effective tax rate of 20%. In Q1, the company accrued withholding tax withholding income tax of RMB 21.2 million, which is 10% of undistributed profit generated by our ROFE. Without a withholding tax, our estimated non-GAAP effective tax rate was around 15% in the first quarter.

Now turning to balance sheet and cash flow items. As of March 31, 2026, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits from investments and restricted cash totaled RMB 8.56 billion compared to RMB 8.68 billion as of December 31, 2025. Net cash provided by operating activities in the first quarter of 2026 was RMB 158.9 million. The difference between operating net cash and non-GAAP net income was mainly due to a significant increase in accounts receivable caused by temporary payment collection delays on one of our apps as well as higher other current liabilities from the accrual of year-end bonuses and the 13-month payroll.

Lastly on business outlook. We estimated our second quarter revenue to come in the range from RMB 2.45 billion to RMB 2.55 billion, representing a decrease of 6. 1 -- I'm sorry, 6.5% to 2.7% year-on-year. This is based on the assumption that at midpoint on a year-over-year basis, revenue from our Mainland China business will decline by high teens percentage-wise while overseas revenue is expected to grow by high 50s percentage wise. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to change. That concluded our prepared portion of today's discussion.

With that, let me turn the call back to Ashley to start Q&A. Ashley, please.

[Operator Instructions] Operator, we're ready for questions, please. Thank you.

[Operator Instructions] Your first question today comes from Xueqing Zhang with CICC.

[Foreign Language] My question about the overseas business. Regarding the [indiscernible] prepared remarks, the [indiscernible] challenges from external factors in the first quarter. Management provide more details on what happened and will this have an impact on the full year revenue abroad for the overseas business. In addition, she also mentioned that the 2 new products continue to see revenue growth, while the losses kept narrowing. So could management share on this new business to turn profitable. Going forward, will the company continue to increase marketing investment to scale these products or will you focus more on narrowing losses and moving to our profitability?

[Foreign Language]

Let me start with [indiscernible] in Q1. So the sequential revenue decline came down to 3 main things. Number one is the Turkish government tightened regulation on social and streaming apps which temporarily resulted in a blanket removal of all related products across the industry. That created a headwind for us in terms of user acquisition in Turkey. And number 2 is a consumer sentiment in the MENA region doing Ramadan was relatively softer. As a large and rather mature product, Socio was more noticeably impacted by this seasonal kind of [indiscernible] and number 3 is the ongoing complex in the Middle East. That has also had some drag on Social's revenue in the Gulf region.

[Foreign Language]

We are confident that [indiscernible] compliance with all applicable Turkish laws and regulations governing social platforms. Our team is actively working with the relevant authorities to bring the app back to the app store as soon as possible. In the meantime, we are accelerating localization efforts in other markets to offset the temporary impact from Turkey. So thus business has already begun to see a steady recovery from the Q1 low, and we do not believe investors need to be overly concerned about it.

[Foreign Language]

So the [indiscernible] manner products had a strong triple-digit year-over-year revenue growth with losses narrowing rapidly. As the business has scaled, the team has been able to gradually adjust the revenue sharing structure, driving meaningful and sustained gross margin improvement over the past year and we have selectively increasing marketing spend where ROI targets are being met and actively testing markets while keeping the losses -- the loss trajectory moving in the right direction each quarter. Our path for these 2 [indiscernible] products is pretty clear, build scale first. Optimize the gross margin structure, keep marketing ROI driven and net profitability flow naturally. [indiscernible] should keep net profitability within a quarter [indiscernible] about half a year behind on that trajectory. And for the full year overseas revenue outlook, I will hand it over to Cathy.

Let me first break the overseas I'll walk into 3 separate pieces. First is our flagship overseas app, Social. As [indiscernible] mentioned earlier, Soulchill was under some pressure in Q1, mainly due to regulatory changes in Turkey as well as the prolonged geopolitical tensions in parts of the Middle East. That said, I think the team has adapted reasonably well to the changing environment. While revenue in Turkey remained somewhat pressured, performance in other Middle East -- other Middle Eastern markets has actually been quite solid. So overall, I would say that social particularly in the first half of the year is likely to come in a bit below our original expectations.

But the business itself remains fundamentally healthy. And the -- if you look at the second piece, for the 2 newer social entertainment apps, we've been scaling in the MENA region, their trends are actually developing very much in line with our plans. And third, for the dating a membership-oriented business outside of the MENA region, that part of the portfolio has remained very much on track. And honestly, that's one of the things that makes stating our membership business model pretty attractive compared with entertainment-driven platforms, the revenue visibility and forecasting clarity are generally much higher. So putting these 3 pieces together, if you recall what we said on the last earnings call, we mentioned that overseas revenue for 2025 was, I think, somewhere around RMB 2 billion.

This year, for 2026, we are likely to hit RMB 3 billion milestone. At this point, our overall view really hasn't changed materially depending on how market expansion progresses across different regions, there could still be somewhere around RMB 100 million variation either to the upside or to the downside of that RMB 3 billion number. But based on what we see today, we remain pretty comfortable with that original range. So hopefully, that answers your question. Back to Ashley for questions.

Operator, next question, please.

Our next question comes from Thomas Chong with Jefferies.

[Foreign Language] In Q1, we saw domestic revenue declined by 15% year-on-year and year-on-year decline widened versus 2025. Management comments, this is related to the new tax rules which affects Momo. May I understand when should we expect these external factors to be fully digested. On the other hand, management comments Alipay automatic renewal has some changes which need to short-term impact to Tantan paying conversion. Can management comment about the scope for this adjustment? And how long did it last? And should we expect this will affect Momo and other subscription products as well? Lastly, how should we think about the full year outlook for the domestic revenue?

[Foreign Language]

So let me first address the impact of tax policies on Momo. I mean new tax regulations introduced in the second half of 2025, combined with stricter local tax collection and enforcement of affected agency's operating chatroom scenario to elevate the pressure on the supply side, we moderately adjusted the revenue sharing ratios for key agencies in the latter half of last year, which yield positive results for those impacted. However, tax authorities further tightened the policies targeting agencies in early 2026, resulting in a decline in agency-related revenue during March and April. .

In response, we selected a group of high-quality agencies in May and began assisting them with tax compliance to help offset the profit pressure caused by additional compliance costs, we introduced a new incentive program and provided further financial support to these selected agencies. And since late May, both operational enthusiasm and revenue among these agencies have rebounded actually rapidly. We expect their performance to return to normal level by Q3.

[Foreign Language]

So as for when Momo Vas will return to year-over-year growth, beyond the tax issue, it also depends on when broader consumer sentiment picks back up. What we can control is making sure the product fundamentals are rock solid and operating efficiency is maximized. And we are very confident in Momo's modernization capabilities.

[Foreign Language]

So on the auto renewal -- Alipay auto renewal policy changes, yes, this did impact Tantan's membership business primarily manifesting as the temporary decline in renewal rates and resulting in some subscriber churn. Team actually responded swiftly. On the monetization side, we launched an unbundling strategy, separating high-frequency pubs that were previously bundled into membership packages such as super likes and booths and offering them as a stand-alone purchases. And we have also enhanced our [indiscernible] features like FlashChat to help offset headwinds in membership renewals. In addition, we are diversifying payment channels, encouraging users to shift towards less affected options and promoting longer-term membership plans.

[Foreign Language]

So in terms of scope, the Alipay policy changes primarily affected subscription or membership products. Momo's core payment model is based on consumable virtual gifts which do not rely on auto renewal. So the impact is actually quite minimal. Our overseas business uses up store or Google Play payment channels, which remain unaffected. Overall, this is a relatively contained issue, primarily impacting only Tantan's domestic membership business. On timing, we expect the impact to be concentrated in the first half of the year with the situation gradually improving in the second half as we diversify payment channels and membership structures. So for the full year domestic revenue outlook, I will hand it over to Cathy.

Okay, time for an update on how we are thinking about the revenue outlook for the rest of 2026. I will, as in previous quarters, used the same framework, which is set upon 3 key elements. The macro environment, the regulatory environment and our own platform fundamentals along those lines, starting with the macro side, honestly, consumer sentiment looks largely unchanged from what we saw at the end of last year and through Q1, it remains relatively soft. But importantly, we are not seeing any meaningful deterioration either.

On the regulatory front, this is really where most of the incremental pressure came from in Q1 and Q2. You are right. that the year-over-year decline in Q1 widened versus last year. And if you look at our Q2 guidance, the domestic revenue decline is expected to widen further from Q1's level. The main reason is tighter tax scrutiny on some of the small- and medium-sized agencies in our ecosystem, which hit March, April and early May, particularly hard. In response, we rolled out new agency incentive policies to encourage tax compliance. The goal here is very straightforward. We want to maintain the long-term health and stability as the content ecosystem and continue supporting the agencies that create the most value on the platform.

Since rolling out these measures in late May, we've already started seeing encouraging feedback and some improvement in operating trends and we do expect June performance to benefit from these adjustments. That said, April and May were clearly impacted by the tightened regulatory environment and that pressure is reflected in our Q2 guidance. Some of the impact could still carry into Q3. But at this stage, we believe the most difficult period is likely behind us already. Now turning to platform fundamentals. As Sic mentioned in the prepared remarks, the core business itself remains very solid. So outside of the regulatory pressure, there really hasn't been any material change in the underlying business fundamentals compared with what we saw in Q1. Looking into the second half of the year, we still expect the year-over-year decline rate to narrow meaningfully. Part of this is because the regulatory impact should gradually normalize as the year progresses.

And part of it is simply because the comparison base become significantly easier in the second half of 2025. So for the second half, we still expect the domestic business decline rate to improve to somewhere below 15% year-over-year. That said, given the additional disruption that we saw in the first half from tax tightening. We are modestly adjusting our full year outlook -- full year outlook. Previously, we were guiding to a low teens decline for the domestic business. Based on what we see so far happened in the first half, we now expect the full year decline to be closer to somewhere around mid-teens year-over-year. So that's how we are currently thinking about the domestic revenue outlook back to Ashley, maybe for one more question. .

Yes. So in the interest of time, let's just take one last before we close the line, and we're ready. Thank you, operator.

Your next question comes from [indiscernible] with UBS.

[Foreign Language] [indiscernible] System futures to newly launched AI voice [indiscernible] quarter. So could you please share more details on the group's AI product road map going forward? And more broadly, how do you view the contribution of innovation to our longer-term earnings growth? And should we expect any nice impact on near-term profitability from AI investments? And given the external [indiscernible] domain overseas business at [indiscernible] how do we assess the group's full year prospect or [indiscernible]

[Foreign Language]

AI is particularly meaningful for a company like ours where social products are the core. On the essence of our product features and recommendation logic is to lower the barriers for users to for connections and enable long-term and effective interactions and deliver emotional value. AI that can genuinely transform the user experience in this space.

[Foreign Language]

Based on what we have built so far, AI is advancing in 2 distinct directions on the product side. And first, enhancing connections between users by breaking the eyes and lowering social areas. Examples include our AI-assisted chat features and the AI voice drift bottle, which we are currently testing. The concept is that AI guys users to provide basic profile information through voice input and then automatically generates more vivid and engage in self-introduction and greetings using the user's actual voice. And this is then published on the platform as a gift bottle.

So these AI tools are particularly valuable for users who have dating needs but relatively weaker social skills. And second, enabling new product formats. For example, like Donut is fully AI-powered voice social products that has already begun monetization in China. And on the overseas side, our AI role play dating app, [indiscernible], has shown solid early traction in Japan and is now expanding to other Asian markets. And these products represent our exploration of what next-generation social experience can look like.

[Foreign Language]

Regarding the impact of AI investment on profitability, our view is that AI spending is high return in nature. It directly improves user experience and drives higher propensity to pay. From an execution standpoint, AI penetration across our products is still in a rapid expansion phase. Over the past year, we focused on refining the AI greeting and AISC chart algorithm on the Momo platform. Going forward, we will be replicating that tax at across more use cases. including AI agents for Momo live streaming, AI shop dramas generation based on broadcasters images as well as smart matching and content distribution [indiscernible] and AI-assisted chatting features. This kind of horizontal reuse of the Tax Act helps maximize the return on investment for the group's profitability outlook, I will pass it over to Cathy.

Okay. On profitability outlook. I will just go back to the framework that we laid out at the beginning of the year on our March earnings call. Starting from the top line, if you combine our updated view on the domestic business with what I just discussed on the overseas side, we now expect group revenue for 2026 to see a slight year-over-year decline versus 2025, probably down by a couple of percentage points at the top level. At the beginning of the year, we also said that we were targeting adjusted operating margin in the low teens. And based on what we see today, that target still looks quite achievable.

That said, because the domestic business faced additional pressure from the tax-related disruption in Q1 and the early part of Q2, our full year revenue outlook in absolute dollar terms is now somewhat lower than where we started the year. naturally, that creates more pressure in terms of absolute profit amount. So internally, we are looking at additional opportunities to optimize spending wherever appropriate and necessary, whether on personnel side, marketing efficiency or other operating areas where we believe we can improve productivity without affecting long-term growth initiatives. So overall, I would say that we remain broadly on track to achieve the profitability targets that we laid out at the beginning of the year. So I think that wraps up the call. Now I'm handing back to Ashley for closing remarks.

Well, so thank you for participating today, and that's going to be the end of the call, and we will see you next quarter. Thank you. Bye.

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

Ladies and gentlemen, thank you for standing by, and welcome to Hello Group's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 Fourth Quarter and Fiscal 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 Ms. Zhang 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 be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995.

Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law.

I will now pass the call over to our COO, Ms. Zhang Sichuan. Ms. Zhang, please?

Thank you, Ashley. Hello, everyone. Thank you for joining today's call. In the second half of 2025, our domestic business faced fresh external headwinds. That said, through the team's agile response and strong execution, we kept our cash cow business stable while sustaining a healthy ecosystem.

To better show you our ongoing structural transition towards overseas growth, we began providing a geographic revenue breakdown in 2025 to improve transparency for investors. Our overseas business delivered exceptional results last year, fueled by organic product incubation and targeted M&A.

This allowed us to diversify our portfolio and rapidly expand our global presence, leading to accelerated revenue momentum. The overseas business is now a solidified revenue contributor and a key engine for our future growth. Next, I'll walk you through the major highlights from Q4 and the full year of 2025 across our business lines, followed by our strategic priorities for 2026.

Starting with the financials. For Q4 '25, total group revenue was RMB 2.58 billion, down 2% year-over-year. Domestic revenue reached RMB 1.97 billion, down 14% year-over-year. Overseas revenue was RMB 608 million, up 70% year-over-year. Overseas revenue accounted for 24% compared to 14% in the same period last year.

Adjusted operating income was RMB 354 million, up 26% year-over-year with a margin of 13.7%. For fiscal 2025, total group revenue was RMB 10.37 billion, a slight decrease of less than 2% year-over-year. Domestic revenue reached RMB 8.37 billion, down 11% year-over-year. Overseas revenue reached RMB 2 billion, up 71% year-over-year. Overseas revenue now accounts for 19% of our total, up for 11% in 2024.

Adjusted operating income was RMB 1.55 billion, down 10% year-over-year with a margin of 15% Next, I'll review the execution of the strategic priorities for Momo and Tantan and our new endeavors in 2025. Let's start with Momo. Our goal is to maintain the productivity of this cash cow while keeping the social ecosystem healthy. Over the past year, our product and channel efforts are centered on this core objective.

On the product side, we focused on 2 major upgrades. First, we upgraded the AI greeting and AI chat assist models to help users break the ice with personalized messages and keep conversation going. Our tech team is consistently iterating these models to make them more humanized and diverse. This upgrades, combined with tailored exposure strategies, significantly boosted the adoption rate of our AI features.

Second, we optimized our product strategy for real-time chat scenario. By using historical data to target users with high chat intent, we have made matching more accurate and interactions smoother. This led to an increase in key metrics such as number of 2-way chats and the rate of in-depth chats. For user acquisition, we proactively cut negative ROI marketing spend refined channel and material by ROI and rebalanced spend between new acquisitions and dormant user reactivation.

This helped us to reduce average acquisition cost despite intensifying channel competition. We also boosted conversation in high ARPU paying scenario, sustaining ARPU growth and delivering profitable ROI all year. We are highly satisfied with 2025 channels results. Early marketing cuts led to some trends among ultra-low spenders, but with very limited revenue drag. In fact, reducing the inefficient spending helped stabilize our profit.

While paying users declined sharply in the first half of the year, the impact bottomed out in the second half. Our new features in audio and video scenarios drove gains in paying ratio, resulting in 3.9 million paying users of Momo in Q4. That's up 200,000 quarter-over-quarter. With some subscription growth in 2 straight quarters, we see clear evidence of healthy recovery. This validates our strategy to broaden low-ticket payment scenario.

In the current economic environment, by focusing on [ non-WOU ] users and a profit-centric channel approach, we have strengthened Momo's position as a resilient 15-year-old cash cow. This strategy has enabled the platform to preserve strong operational help, exhibit solid resilience against external pressures and consistently deliver stable results.

Turning to Momo's commercial performance. In Q4, Momo's VAS revenue was RMB 1.68 billion, a year-over-year decrease of 14% and a sequential decrease of 6%. As mentioned last quarter, the decline was mainly due to the new tax regulations in October and stricter enforcement which significantly dampened the motivation of high-grossing streamers and agencies. For the full year 2025, Momo's VAS revenue totaled RMB 7.09 billion, down 11% year-over-year. Beyond tax factors, macro softness also affected spender sentiment among high-value users.

Product and operation-wise, we focus to focus -- we continue to focus on our top cohort users in live streaming through specialized events and gameplay innovation. Meanwhile, we pivoted our emphasis towards audio and video scenarios that better align with mid-tier and long-tail users. This shift helped offset some of the external headwinds on revenue.

Furthermore, the growing proportion of the revenue from higher-margin audio and video scenarios contributed our overall gross margin stable. Now let's turn to Tantan. Our 2025 goal was to build a dating experience and efficient business model tailored for Asian users. As of Q4, Tantan has 600,000 paying users, a decrease from 700,000 from last quarter.

Marketing costs have driven user declines in recent years, but our return to brand building and experience optimization have kept organic traffic stable. Currently, the vast majority of new users on Tantan come from organic growth. and the platform is no longer reliant on channel acquisition. At the same time, retention has improved slightly.

On the financial side, in Q4, Tantan's domestic business generated RMB 136 million in revenue, down RMB 41 million year-over-year and RMB 16 million quarter-over-quarter. For the full year 2025, domestic revenue totaled RMB 613 million compared to RMB 733 million in 2024. The decline was a deliberate result of reducing channel investments through steady ARPU growth provided a partial offset.

On the product side, we rolled out our new version in the first half of 2025, focusing on real person verification and a cleaner interface. We further advanced AI tools for profile enrichment and chat assistance while improving the female users' recommendation. This reduced noise from poor matches and development chat boosted female users retention and like per user.

To balance the revenue impact of declining paying users, we also restructured membership tiers to improve low-end coverage and increase paywall exposure for users with high payment potential. This product and algorithmic optimization drove increases in both pay conversion rate and ARPU. Regarding channels, we focus on achieving 100% return on acquisition costs.

By cutting high-cost negative ROI channels, we significantly narrowed acquisition costs compared to last year. Combined with ARPU improvement driven by product upgrades, Tantan achieved full payback on channel investment in Q1 with ROI reaching new highs throughout the year. Based on this trajectory, we expect Tantan to generate around RMB 100 million in annual operating profit for the foreseeable future.

This gives the team a comfortable window to focus on what matters most, the long-term retention of the Tantan users. This can be achieved only through providing a better dating experience and building a brand image as a dating platform uniquely for Asian daters. We will continue to plough this land until we get the reward we deserve.

Lastly, our new businesses. In 2025, our goal was to deepen our overseas presence, enrich our brand portfolio and build a long-term growth engine. In Q4, overseas revenue reached RMB 608 million, up 70% year-over-year and 14% quarter-over-quarter. For the full year 2025, overseas revenue totaled RMB 2 billion, a 71% year-over-year growth. This growth has largely offset the revenue dip in the domestic market.

This rapid growth was driven by audio and video social products in MENA region, especially Yaha Live and Amar. The 2 new apps that began monetization at the end of 2024, leveraging the successful experience of SoulChill, which has driven continued revenue growth while narrowing the net loss.

Meanwhile, SoulChill remain our largest contributor, although its growth fell slightly short of our initial expectation due to slower localization, which slowed our plans to expand into live streaming and the wealthier golf countries. For 2026, strengthening our regional operation remain a top priority.

Beyond MENA, we have seen great progress with MiraiMind in Japan. As mentioned before, MiraiMind is an AI-powered anime style companion and romance app. Its AI-driven character creation and natural language model has been very well received, and we see a clear expansion opportunities there. In our Dating segment, Tantan International officially separated its domestic and overseas version in the second half of 2025, allowing for a more tailored international experience.

This separation removed historical technical and operational constraints, laying on a solid foundation for Tantan's long-term international growth. We also made a major breakthrough by acquiring Happn, a well-known European dating product, which was an important driver of the accelerated year-over-year overseas revenue growth in Q4. This, along with other recent acquisitions has allowed us to rapidly penetrate key untapped markets, including Europe, Turkey and South America.

Moving forward, we plan to bring this premium global brands into Asian markets to create even more synergies across our ecosystem. Overall, in 2025, our overseas business delivered robust gains in both scale and quality. driven by a multiproduct strategy, deepening penetration in core regions, leveraging our proven expertise and complementing organic growth with strategy acquisition.

Moving forward, we remain committed to solidifying our marketing -- our market position in MENA region, rapidly enter high potential new markets and maximizing synergies across our core business segments, thereby establishing overseas operation as a key driver of the group's sustained long-term growth. That concludes our business review for 2025. For 2026, we will continue our strategy, our strategic priorities, Momo for productivity, Tantan for the Asian leading experience and new businesses for the growth engine.

Lastly, I'm pleased to announce that our Board has approved a special cash dividend in the amount of USD 0.28 per ADS for a total cash payment of approximately USD 42.6 million or about 30% of the adjusted net income contributed to -- hello Group Inc. in 2025. And this is the eighth consecutive year of dividends, reflecting our stable operation and commitment to creating long-term value for shareholders. This concludes my remarks.

Now let me pass the call over to Cathy for financial review. Cathy, please.

Thanks, Sic. Hello, everyone. Thank you for joining our conference call today. Now let me take you through the financial review. Total revenues for the fourth quarter 2025 was RMB 2.58 billion, down 2% year-on-year and 3% quarter-on-quarter. Non-GAAP net income attributable to the company was RMB 281.3 million compared to RMB 230.5 million in the same period of 2024 and RMB 404.5 million in the previous quarter. Looking into key revenue items for Q4.

Total revenue for value-added services for the fourth quarter of 2025 was RMB 2.53 billion, down 2% year-on-year and 3% quarter-on-quarter. On a geographic basis, PRC Mainland VAS revenue was RMB 1.93 billion, down 14% year-on-year and 3% quarter-over-quarter. The decrease was primarily due to 3 factors: number one, heightened tax scrutiny on the supply side, which diverted their operational focus; number two, softened consumer sentiment amid broad macro pressures; and number three, a decline in paying users on Tantan.

VAS overseas revenue reached RMB 604.4 million, up 70% year-over-year and 13% quarter-over-quarter. This robust growth was primarily fueled by the rapid expansion from multiple social entertainment and dating brands across our diverse portfolio. Turning to costs and expenses. Non-GAAP cost of revenue for the fourth quarter of 2025 was RMB 1.6 billion compared to RMB 1.72 billion for the same period last year.

Non-GAAP gross margin for the quarter was 37.8% compared to 34.7% from a year ago period. In Q4 '24, our non-GAAP cost of revenue included certain one-off items. Excluding these special items, gross profit margin in Q4 '25 was slightly down 0.4 percentage points year-over-year. The decrease was the net impact from several factors due to the same structural shift of revenue toward membership subscription revenue in the overseas market, especially in developed markets.

These factors are: number one, payment channel costs accounted for a higher proportion of total revenues. two, personnel costs increased as a percentage of revenue; and number three, revenue share to the content providers and agencies decreased as a percentage of revenues. The first 2 are headwinds to gross margin and the third one is a tailwind. Non-GAAP R&D expenses for the fourth quarter was RMB 203.9 million compared to RMB 212.4 million for the same period last year, representing a 4% decrease year-over-year.

The decrease was attributed to optimization of engineering personnel. Non-GAAP R&D expenses as a percentage of revenue was 8%, same as Q4 last year. We ended the quarter with 1,400 total employees compared to 1,390 from a year ago. The R&D personnel as a percentage of total employees for the group was 56% compared to 61% from Q4 last year.

Non-GAAP sales and marketing expenses for the fourth quarter was RMB 339.9 million compared to RMB 311.7 million for the same period last year, representing 13% and 12% of total revenues, respectively. The year-over-year increase in sales and marketing expenses was primarily driven by marketing investment in our overseas apps.

This increase was partially offset by our ongoing cost control measures in the PRC Mainland businesses, where both Momo and Tantan reduced their marketing spend. Non-GAAP G&A expenses was RMB 85.7 million for the fourth quarter compared to RMB 117.6 million for the same quarter last year, representing 3% and 4% of total revenue, respectively.

The decrease in G&A expenses was due to a combination of factors that resulted in a high base in Q4 '24, including provisions for some pending legal matters as well as due diligence costs in connection with potential investments. Non-GAAP operating income was RMB 354.1 million, representing a margin of 13.7% compared with RMB 279.9 million and a margin of 10.6% from Q4 '24.

Excluding certain one-off costs and expenses items, operating margin for Q4 '24 would have been 14.2%. Non-GAAP operating expenses as a percentage of total revenue stood at 24%, unchanged from the year ago period. Now briefly on income tax expenses. Total non-GAAP income tax expenses was RMB 72.0 million for the quarter with an effective tax rate of 17%. In Q4, the company accrued withholding income tax of RMB 18.4 million, which is 10% of undistributed profit generated by our ROFE.

Without the withholding tax, our estimated non-GAAP effective tax rate was around 13% in the fourth quarter. Now turning to balance sheet and cash flow items. As of December 31, 2025, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments and restricted cash totaled RMB 8.68 billion compared to RMB 14.73 billion as of December 31, 2024.

The decrease in cash reserves was attributable to bank loan repayments, distribution of a special cash dividend, settlement of withholding tax accrued for prior periods, together with certain acquisitions and investments and ongoing repurchases of the company's own shares throughout 2025. Net cash provided by operating activities in the fourth quarter 2025 was RMB 549.7 million.

Lastly, on business outlook. We estimated our first quarter revenue to come in the range from RMB 2.3 billion to RMB 2.4 billion, representing a decrease of 8.8% to 4.8% year-on-year. This is based on the assumption that at midpoint on a year-over-year basis, revenue from our Mainland China business will decline by mid- to high teens percentage-wise, while overseas revenue is expected to grow by high 40s percentage-wise.

Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to change.

That concluded our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please.

[Operator Instructions] Operator, we're ready for questions.

[Operator Instructions]

Your first question comes from Thomas Chong with Jefferies.

Based on the guidance just given now, Q1 domestic business is expected to decline more than what we saw in Q4 last year and full year 2025. Can management provide some color about the trend for domestic revenue this year? What are the measures undertaken on this cash cow business? When should we expect domestic revenue to start declining year-on-year and stabilize?

Thank you. Looking back, our 2025 revenue hit the overall target. But the path, there was a little bit of surprise. We actually started the year very strong by tapping into our mid-tier and regular users, which helped us beat expectations in the first half. However, things got tougher in the second half. New tax policies really hit our supply side and momentum slowed.

That said, the Momo team did an incredible job staying steady a really challenging environment, and we are very happy with how they handle it. So while the top-tier users started to tighten their belts, we pivoted and we did it fast. We moved our focus to small ticket spender. -- think social games and direct chat features that don't need expensive agencies.

We kept moving our AI tools to make the social experience smoother. This strategy worked. We added 400,000 new paying users in the second half of the year. For a mature platform like Momo, growing that much in this economy is not easy. This shows our business is becoming more resilient and less dependent on top-tier users. Protecting profits, I think I want to highlight that we have been very proactive with our cost cutting.

Because we streamlined our teams and reduced channel spending, our profit didn't drop nearly as much as our revenue did. We are keeping the cash cow healthy. Looking into 2026, we are not expecting the macro environment to fix itself overnight. So we are sticking the game plan that works in 2025.

On the product side, more AI, better chat features and more social games to keep users grew to the platform. On the money side, we will keep focusing on audio and video scenarios that regular users love. We also expect revenue pressures to continue this year, similar to what we saw in 2025. But our commitment to efficiency is ironclad. Even if the top line numbers fluctuated, we are fully confident that we can keep our profit stable.

Let me hand it to Cathy to dig into the numbers.

Okay. I would like to frame the 2026 revenue outlook around my good old 3 key drivers. Number one is regulatory environment; number two, macro conditions; and number three, platform fundamentals. Firstly, on regulation. The tax scrutiny on agencies and broadcasters in the second half of '25 materially impacted our value-added services revenues.

But we believe most of the negative impact from that scrutiny has been absorbed by the end of Q1 '26. So assuming no incremental regulatory tightening from here, Q1 should provide a cleaner base to assess underlying trends. Second factor, macro. Consumer sentiment remains soft, perhaps even a little bit softer compared to a year ago. That said, macro conditions have been challenging for the past several years, and we have been adapting our monetization and product strategies accordingly.

Encouragingly, our revenue mix is, as Sic said, becoming less top heavy, reflecting improved contribution from mid- and long-tail users. We have additional initiatives rolling out in the coming quarters that aimed at improving monetization efficiency under weak demand conditions. And the third factor, platform fundamentals. Since Q3 2025, we have seen a meaningful shift after multiple years of decline, paying users have returned to net growth, roughly -- I think we've been adding roughly 200,000 net adds per quarter.

Retention metrics for both users and paying customers have also improved modestly. We see this as evidence that product optimization and user experience upgrades are working, particularly in expanding monetization beyond heavy standards. So if you put these 3 factors together and assuming no incremental regulatory tightening and broadly stable macro conditions, our baseline view for 2026 is First of all, full year revenue decline should be around low to mid-teens year-over-year.

If you break the time line down, first half of '26 decline should decline in the mid-teens and perhaps the second half '26 would moderate meaningfully due to easier comps and improving fundamentals. So that's the outlook for '26. I think there is another question, which is when does the domestic business bottom? It's difficult to precisely call the bottom at this stage.

However, based on the trajectory that we're seeing, like I said, we expect the year-over-year decline to moderate in the second half of '26. If the external conditions are stable by Q4 this year, we may narrow the year-over-year decline rate to below 10% if we are lucky. That said, the timing of a full bottom will depend significantly on, of course, macro recovery. Our current focus is on strengthening controllable fundamentals so that when macro stabilizes, we are positioned to return to growth.

Back to Ashley for more questions.

Operator next question, please.

Your next question comes from Xueqing Zhang with CICC.

My question is about overseas business. As you mentioned in your prepared remarks, the overseas business accelerated in 2025, mainly driven by the commercialization of new products in MENA regions as well as contribution from M&A consolidation. Could management share more color on the revenue contribution from MENA, specifically for audio and video products, new apps and SoulChill ? What kind of sales are we looking at for each of these?

And how should we think about the growth trend of overseas revenue in 2026? Also has the recent geopolitical situation in the Mid East had any impact on the operations in the region? And lastly, considering the overseas business is still in the investment phase, what's the margin impact in 2026? And when do you expect overseas operations to start contributing meaningful profit?

Thank you for the question. First, let's look at the big picture. Back in 2024, our overseas revenue was almost entirely driven by SoulChill and Tantan International. But in 2025 was a total breakout year for us. Our overseas revenue dropped more than 70%, hitting the RMB 2 billion mark. In terms of mix, SoulChill is still the heavy hitter.

It brings in over half of our international revenue, but the real growth engine right now is our new MENA products, Yaha Live and Amar. They are scaling fast, and they will be the main drivers for us as we head into 2026. But it's not only just about the Middle East though, our other markets are also picking up serious speed. We have got Tantan International in Asia, MiraiMind in Japan and Happn, which started in Europe and is now moving into Turkey and South America.

In 2026, we are focusing on going deeper into this market. We expect this dating segment to become our first largest revenue pillar right behind SoulChill and our new MENA app. Long term, we see massive potential there. The developed markets are more mature and stable. So we are staying fully committed to them for the long haul. As for the revenue trends and the final details for 2026, I will let Cathy walk you through the numbers.

Okay. Let me break this down into 2 parts, growth trajectory of overseas business and profitability. With regards to the revenue growth outlook, unfortunately, it's a bit hard to give you a precise quantitative outlook for 2026 because as Sic said in her remarks, if you look at the overseas part of the business, it's a piece that spans across different markets, including both developing markets and developed markets.

In addition, it also spans across different business sectors, including social entertainment and dating. -- each of these markets and sectors presents different growth dynamics and associated risks/ uncertainties. All of those make it hard to pin down a very precise outlook at the beginning of the year, specifically at the time when a lot of these business are still developing so fast.

But what I can do is to try to sort of unpack the growth dynamics in each of the different sectors along the lines that are just outlined by Sic. In MENA area, we're -- what we are doing mostly involves social entertainment, SoulChill, which is our flagship brand has already surpassed RMB 1 billion revenue. As the base scales, growth rates will naturally moderate.

Additionally, we also have to admit that some of our product and geographical expansion plans didn't progress as fast as we planned in 2025. So there is going to be a further slowdown in its growth in 2026, especially in first half. But in absolute terms, it will remain a meaningful contributor this year. At the same time, newer products such as Yaha Land and Amar are still in rapid expansion phase. Their continued scaling should be able to offset the moderation at SoulChill.

With regards to the impact from the war, the Iran war, so far, the negative impact on our business is quite limited. However, if it becomes a prolonged conflict or keeps escalating, it certainly would have adverse effects on our business, especially our expansion plan into the Gulf countries and existing business in regions such as Saudi and perhaps Iraq as well.

Outside MENA, our dating and AI-driven products in developed markets are gaining very strong traction. The AI-powered application MiraiMind is scaling quickly in Japan, and we are beginning to replicate that model in other markets. The various dating brands that we have are also growing -- are also growing stronger in their established markets. In 2026, we are also investing to expand our dating footprint in new markets as well.

So overall, we expect the non-MENA piece to grow rapidly and reach a pretty sizable level in 2026. So if you take all of these together based on current run rate and expansion plans, we believe something like RMB 3 billion in overseas revenue for 2026 is a pretty achievable target, and that compares to around RMB 2 billion in 2025. So I would take that RMB 3 billion number as the baseline scenario, perhaps add in a couple of hundred millions as potential upside or downside depending on execution and the pace of geographical rollout.

Now moving on to the second question, which is on profitability, when the -- specifically when the overseas business is going to turn profitable. Again, I don't want to sound too prescriptive on that because we are still early stage in our overseas development and facing so many different growth opportunities as well as associated uncertainties. But you're generally right in thinking that overseas remains in an investment phase.

And I can perhaps talk more about where we are right now in terms of bottom line for our overseas business. And hopefully, by explaining how we manage the growth with financial discipline, we can help you form your own view about when we can expect overseas business to reach a breakeven point. At an operational level, overseas was loss-making in 2025, primarily due to continued investment in the 2 new MENA apps and AI-driven products.

While we do not disclose segment level operating profit, directionally, the overseas operating should be roughly in the RMB 200 million range for 2025. That's my best estimate at this point. If you break things down among different applications, the picture is actually quite mixed. More mature apps such as SoulChill has long been profitable. Established dating brands are also profitable.

But instead of trying to grow the profit, we are going to invest part of the profit into growing into new markets because we do believe these acquired brands have a lot of potential to be unleashed outside of their existing strongholds. Yaha Land and Amar are scaling rapidly and narrowing losses with clear payback visibility. We expect Yaha Land to turn profitable within this year and Amar should be behind it by half a year or so.

The AI-driven product MiraiMind remains in investment mode as we prioritize user growth and product capability. We don't want to focus too much on reaching profitability for that product. But of course, for each of the region we are in, we also have a payback period that's required. On timing -- overall timing to profitability for the overseas piece, while I don't have a clear answer, here is the principle how we exercise financial discipline when talking about growing into various markets.

Structurally, our internal requirement is that new products should achieve payback within either 1 to 3 years, depending on the maturity of the market and the business model. That means if we are -- if we were to moderate top line expansion, then we should see profits coming in sooner. However, as long as we see attractive new investment opportunities, be it new markets or new products, we are willing to reinvest to maximize long-term value creation.

The key point is this, we are not pursuing growth at any cost. We are pursuing scalable -- only scalable growth with defined payback periods and disciplined capital allocation. I guess that's what I can say at this point about overseas profitability. Now back to Ashley for more questions.

Next question, please operator.

Your next question comes from Leo Chiang with Deutsche Bank.

We had initially expected that adjustment in ratio in the second half together with the rising contribution from low-margin overseas audio and video business would drive a sequential decline in gross margin in Q4. However, Q4 gross margin held relatively stable and even came in slightly above management previous guidance of 36% to 37%. Should we interpret this as an indication that group gross margin in 2026 could remain broadly at the Q4 2025 level?

My second question is management indicated that domestic revenue in 2026 is expected to decline year-over-year and low to mid-teens. while overseas revenue is projected to increase from RMB 2 billion to RMB 3 billion. Does this suggest that overall revenue for 2026 could be roughly flat? And given that overseas operations are still in the investment phase, could you provide us with some directional guidance on profitability for the 2026?

Okay. I'll take this question. I'm hearing many questions. Firstly, on gross profit. And the second question is revenue at the group level. Third question is perhaps asking for guidance on the group level profit. So let me sort of flip the sequence of the question a little bit. Let me talk about group level revenue. Before that, I would like to throw out a disclaimer here that we do not really have visibility to give annual guidance on either top or bottom line at this point.

So my comments below should be taken as a sort of a working assumption rather than firm targets, especially given uncertainties in both domestic macro environment and the pace of overseas expansion. With that in mind, here are how we think about 2026.

On revenue, your math is broadly in line with how we are thinking about it. If we take the baseline assumption we previously discussed domestic business declining roughly low to mid-teens year-over-year and overseas revenue increasing from around RMB 2 billion in '25 to roughly RMB 3 billion in '26, then at the group level, a -- either a flattish or slightly downtick top line versus 2025 would be a reasonable baseline assumption.

And then the question on gross margin, you're right that Q4 came in better than we had guided in Q3, and the outperformance mainly came from 2 areas. Number one is on the domestic side, we had expected to further compress margins by raising payout ratios to support agencies under tax scrutiny. In practice, we faced a payout increase in several rounds.

And after the first 2 rounds, we saw motivation among agencies and broadcasters recover pretty strongly, more strongly than expected. As a result, we didn't need to deploy as many promotional incentives as originally planned. That helped domestic margin came in better than we had assumed. And second, on the overseas side, particularly in MENA region, we are starting to see operating leverage as revenue scales.

Gross margin there improved faster than we initially modeled as well. So given those dynamics, I think it's reasonable to use Q4 gross margin as a reference point when thinking about '26. If overseas continues to scale as expected, that could be -- there could be some upside at the group level. However, I want to be careful not to over extrapolate one quarter, one specific quarter. There is still macro uncertainty domestically.

And if we feel additional investment is needed to support the content partners and sustain revenue quality, we would be willing to do that. So at this stage, stability around the 2025 level feels like a prudent base case with potential variability on either side. And on the last question on profitability, if you look at operating expenses, personnel and marketing remain the 2 largest components. And here is my thinking along those lines.

Because overseas markets are still in an investment phase, we do expect absolute engineering and personnel costs to increase slightly. But at the same time, we're going to continue to optimize some of the nonperforming businesses. So for R&D, currently, I'm thinking low single digits year-over-year. Marketing could grow in the somewhere around high teens range or 20-something percent. A lot of it -- I mean, how much we end up spending on marketing will depend on ROI in new markets.

If certain regions are delivering strong returns, we may lean in more aggressively in that region. If returns are below expectations, we can dial back relatively quickly. So there is a building flexibility in our cost structure and how we manage revenue against marketing investments. Putting this together, if revenue is broadly flat and operating expenses growth at low teens, then on a reported basis, the bottom line will likely come in lower -- come in below 2025 levels.

So if we were to frame it in margin terms in 2025, we delivered somewhere around 15% adjusted operating margin for '26. At this point of time, our internal objective is to keep the operating margin above 10%, likely in the low teens range. Overall, I would describe this year as a year where we are balancing profitability with disciplined investment. We see opportunities overseas, but we also want to maintain flexibility. So these assumptions reflect what we can see today with the understanding that we will adjust as conditions evolve.

With that, I would like to turn back to Ashley for closing remarks.

Yes. In the interest of time, I think we're going to call it a day, and thank you for joining us and see you next quarter.

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

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2025 Hello Group, Inc. Earnings Conference Call. [Operator Instructions] 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 Third 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, COO of the company; and Ms. Peng Hui, CFO of the company. We will discuss the company's business operations and highlights as well as the financials and guidance. We will all be available to answer your questions during the Q&A session that follows.

Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict 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 CFO, Ms. Zhang Sichuan. Ms. Zhang, please?

Thank you. Hello, everyone. Thank you for joining our call. In Q3, our business faced some external challenges, but our team was able to respond proactively and achieve good results in both users and financial measures. Next, I will give you an update on execution of our strategic goals. Starting with the financial performance for Q3 2025. Total group revenue was RMB 2.65 billion, down 1% year-over-year. Domestic revenue reached RMB 2.12 billion, down 10% year-over-year. while overseas revenue was RMB 535 million, up 69% year-over-year. Adjusted operating income was RMB 404 million, down 11% from Q3 last year, with a margin of 15.2%.

Our key priorities for 2025 include the following: for Momo, our goal is to maintain the productivity of this cash cow business with a helical ecosystem. For Tantan, the goal is to improve its core dating experience and build an efficient business model that drives profitable growth. As for the new endeavors, our goal is to define our presence in the ofvereseas market, enrich our brand portfolio and build a long-term engine. And now let me walk you through the details. First, on the Momo app, we believe that a healthy social ecosystem is the financial of sustained and stabilizing our cash cow business. Therefore, our product efforts are focused on optimizing the cat experience and creating better scenarios and tools for users. We fully roll out in-house developed [indiscernible] features in the first half of the year.

Data shows that the [indiscernible] way of male users has increased as a result. It prove the team's exploration on leveraging AI technologies to upgrade social trading tools is tractable during the past year. In Q3, we updated the AI chat system model based on earlier tests by leveraging the platform's corpus -- the model was optimized to better align with users preferences and chatting style, thereby encouraging more users to adopt the AI chat assistance content suggestion during the ongoing conversations. We have increased exposure to this feature to improve its penetration rates on the platform, enabling more users to benefit from it. The optimization of the AI has a system model and is in platform promotion had improved the female user experience driving ongoing quarter-over-quarter increase in various user measures, such as number of 2-way chat, the rate of in-depth chats and user retention, et cetera.

On the user acquisition front, we dynamically address this channel allocation based on their ROI performance to ensure 100% ROI. Over the past year, although the shift to our profit-oriented channel strategy brought to the tune of large number of ultra loans ending users. It improved the platform's overall profitability by reducing user acquisition, expenditure with negative returns. As of Q3, the impact of reduced channel investment and paying users has bottomed out. The multiple new gifting features we introduced in audio-based scenario led by chat rooms drove a paying ratio increased, driving the number of paying users to increase by RMB 200,000 quarter-over-quarter to RMB 3.7 million in Q3. Although the reduction in user acquisition something has led to a slight year-over-year decrease in overall user scale.

Momo social fundamental remains robust. Thanks to the product upgrades and the recommendation algorithm optimization, which has enhanced the user experience. User engagements continue to grow within a healthy social ecosystem. According to an independent report released by Crest Mobile 2025 male consumer Market Insights in June. Momo as a 40-year-old social brands remain the top [indiscernible] choice for mall users age 30 to 40. This clearly shows that Momo has established strong brand loyalty among high-value users in with substantial spending power. We believe this is a valuable asset that company will continue to nurture and benefit from for years to come.

Now on the productivity of Momo cash cow business. In Q3, Momo's value-added service revenue in RMB 1.79 billion, down 11% year-over-year and 3% quarter-over-quarter. As we indicated last quarter, the new tax requirements came out at the end of June, coupled with the local tax authorities inspection of agencies since Q3 have really impacted the operation focus of some broadcasters and agencies on our platform, leading to a significant revenue decline in revenue in audio and video-based scenario. To elevate supply-side pressure, we roll out a new revenue-sharing policy in August, providing appropriate subsidies to broadcasters and agencies that were really affected by tax changes. The policy has some encouraging effects, but it couldn't fully offset the negative impact from the tax burden in the short term.

Turning to Tantan. As of the end of Q3, Tantan has 0.7 million paying users broadly in line with last quarter. The pressure on the paying ratio caused by last year's product upgrade was fully released after the complete rollout of the pilot in Q2. In Q3, the team drove a slight recovery in the paying ratio by adjusting the monetization strategy.

Turning to Tantan's financials. Revenue from the onshore business in Q3 was RMB 150 million, down 15% up 30% year-over-year and 5% quarter-over-quarter. The revenue decrease was due to the decline in number of paying users but ARPU significantly increased 25% year-over-year and 6% quarter-over-quarter. At the parlor level, we continue to refine our strategy on optimizing the experience for female users, which includes establishing a curated recommendation pool for newly registered user -- female users improve their white quality and providing highly attractive female users with a more diverse mouth recommendation to enrich their matching options and implementing an overheating protection mechanism to prevent excessive matches that may affect the current interactions. For male users, we optimize backend recommendation rules by adjusting their exposure concentration.

Both enhancement in female user experience and now user recommendation algorithm has driven quarter-over-quarter growth in several key user metrics, such as state one retention average life of average number of light for users and DAU among new users. At the amortization level, we introduced basic products such as unlimited white privilege pack to fill the gap in low-tier membership offering. Regarding the algorithm, we slightly adjusted the matching rate for high potential paying users to improve their conversion to pay. In Q3, although our focus on acquiring higher-quality user groups led to a sequential increase in unit acquisition costs. The restructuring of our new membership system combined with the algorithm optimization growth app growth, pushing Tantan's channel ROI to a record high.

As a result, despite pressure on user scale and revenue, Tantan achieved significantly significant year-on-year and quarter-on-quarter profit growth, creating more room for our data products to exploration tailored to Asian users. Lastly, overseas business, in Q3, revenue reached RMB 535 million, up year-over-year and 21% quarter-over-quarter. Overseas revenue accounted for 20% of the group's revenue compared to 12% in the same period of last year. In Q3, overseas revenue growth mainly came from audio and video social products in the MENA region. Among them, Yahalan and Ammar continue to enhance product features by improving localized operations and strengthening product and partnerships driving a steady increase in both number of paying users and ARPU.

On the user acquisition front, during the first half of the year, we absorbed a rapid rising user acquisition costs while scaling up channel investments in new products so we slowed down our marketing efforts and try to find a scalable solution that can also balance ROI. In Q3, our channel experiment shows initial success so we moderately increased channel spending and accelerated revenue growth. Meanwhile, [indiscernible], our largest audio-based show-show product in MENA region optimize its marketing strategy by increasing investment proportion in high-value countries, driving a substantial growth in both revenue and profit. Except for these 3 audio-based product, we have recently begun testing the expansion of audio and video-based soto entertainment product into other high ARPU regions such as the Gulf countries and Japan.

We hope this effort will become our growth drivers for the group in the future. on our audio video social products in the MENA region. Another key segment for our overseas business, the dating product line focused on developed markets. also delivered strong performance. Tantan International returned to sequential growth for the first time in the year following a full year of product adjustments and rebranding executed by our Singapore team. Additionally, we completed the acquisition of our European dating product happened at the end of Q3. [indiscernible] founded in Paris, France primarily leverage location-based services to facilitate online to offline dating experiences for users, which happened during our portfolio, the group product landscape now officially extend to Europe further in retrain the diversity of our overseas dating products.

We believe that the high-quality data in brand like happened, which originated in [indiscernible] developed world have significant growth potential in Asia Pacific region. In the past, these brands will constrain by limited resources and insufficient localization expertise preventing them from fully realized entire potential in the Asia Pacific region. We hope that the combination of Hello Groups and this brand will fully unleash that potential. We have enough patience and commitment to create a high-quality data experience for young people in China and Asia. We are confident that these stating brands will inject new momentum into the group's future.

This concludes my remarks. Now let me pass the call over to Cathy for the financial review.

Thanks, Sic. Hello, everyone. Thank you for joining our conference call today. Now let me take you through the financial review. Total revenue for the third quarter 2025 was RMB 2.65 billion, down 1% year-on-year, but up 1% quarter-on-quarter. Non-GAAP net income attributable to the company was RMB 44.5 million compared to RMB 493.3 million in the same period of 2024 and RMB 451.9 million in the previous quarter, excluding a one-off tax expense item. Looking into the key revenue items for Q3. Total revenue from value-added services for the third quarter of 2025 was RMB 2.61 billion, down 1% year-on-year, but up 1% quarter-on-quarter. .

On a user geography basis, PRC Mainland value-added services revenue was RMB 2.8 billion, down 11% year-over-year and 3% quarter-over-quarter. The decrease was primarily attributable to 3 factors: number one, test scrutiny on certain broadcasters and agencies which distracted their operational focus. Number two, softened consumer sentiment driven by macro factors. And number three, a decline in paying users on compound. SaaS overseas revenue came in at RMB 533.1 million, up 69% year-over-year and 21% quarter-over-quarter. The year-over-year and sequential growth was mainly driven by rapid expansion from multiple social entertainment as well as dating brands across our rich portfolio.

Turning to cost and expenses. Non-GAAP cost of revenue for the third quarter of 2025 was RMB 1.65 billion compared to RMB 1.62 billion for the same period last year. Non-GAAP gross margin for the quarter was 37.6%, down 1.7 percentage points from the year ago period. The decrease was primarily attributable to 2 factors: number one, the deliberately higher paying payout ratio for the Momo business to ease supply side pressure amid tax scrutiny. Number two, a structural revenue shift towards overseas markets, which payment or payment channel costs represent a higher percentage of revenue. Non-GAAP R&D expenses for the third quarter was RMB 170.6 million compared to RMB 185.4 million for the same period last year. representing an 8% decrease year-over-year. The decrease was attributed to personnel optimization.

Non-GAAP R&D expenses as a percentage of revenue was 6% and compared with 7% from the year ago period. We ended the quarter with 1,386 coil employees compared to 1,355 from a year ago. R&D personnel as a percentage of total employees for the group was 57% compared to 61% from Q3 last year. Non-GAAP sales and marketing expenses for the third quarter was RMB 335.9 million compared to RMB 350.1 million for the same period last year. both representing 13% of total revenue. The year-over-year increase in sales and marketing expenses was attributable to the ongoing cost control strategy for the DRC and businesses where both Momo and Tantan narrowed their marketing spend. This decrease was partially offset by the increase in channel investment for the overseas app. Non-GAAP G&A expenses was RMB 91.0 million for the third quarter compared to RMB 85.2 million for the same quarter last year both representing 3% of total revenue, respectively.

Non-GAAP operating income was RMB 404.0 million with a margin of 15.2% compared with RMB 454.7 million with a margin of 17% from the same period last year. Non-GAAP OpEx as a percentage of total revenue was 23%, same as Q3 2024. Now briefly on income tax expenses. Total income tax expenses was RMB [ 69.0 ] million for the quarter with an effective tax rate of 14%. In Q3, the company accrued withholding income tax of RMB 24.5 million which is 10% of undistributed profit generated by our ROFE. Without withholding tax, our estimated non-GAAP effective tax rate was around 9% in the third quarter.

Now turning to balance sheet and cash flow items. As of September 30, 2025, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits reinvestments and restricted cash totaled RMB 8.86 billion compared to RMB 14.73 billion as of December 31, 2024. The decrease in cash reserves was primarily attributable to 3 factors: number one, repayment of RMB 4.41 billion bank loans, including accrued interest. Number two, payment of special cash dividends totaling RMB 346 million to our shareholders. In Q2, and number three, a one-off with home tax payment of RMB 356 million in September, which was previously communicated during our last earnings call. Net cash provided by operating activities in the third quarter 2025 was RMB 143.5 million, gap between operating cash flow and non-GAAP net income was primarily attributable to the payment of the above-mentioned withholding tax.

Lastly, on business outlook. We estimated our fourth quarter revenue to come in the range from RMB 2.52 billion to RMB 2.62 billion, representing a decrease of 4.4% and to 0.6% year-on-year. This is based on the assumption that on a year-over-year basis, revenue from our Mainland China business will decline by mid- to low teens percentage-wise while overseas revenue is expected to maintain a growth rate similar to that seen in Q3. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to change. That concluded our prepared portion of today's discussion.

With that, let me turn the call back to Ashley to start Q&A. Ashley, please.

Just a quick reminder 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. Operator, we're ready to take questions.

[Operator Instructions] Your first question comes from Thomas Chong with Jefferies.

[Foreign Language] During the prepared remarks, management highlights, Momo is affected by tax issue from the supply side and adjust the revenue sharing ratio. Can management comment about the latest progress of the adjustment? And how should we think about the margin impact. On the other hand, can management also provide some more color why our peers didn't mention a similar issue. On the guidance we've just given this is about low teens year-on-year decline for Momo. So just for the full year. So how should we think about the revenue trend for this cash cow business as we come into 2026?

[Foreign Language] Okay. Let me translate. At the end of Q2, tax authorities introduced policy adjustments related to the flexible workforce, which officially took effect on October 1. For Momo, these adjustments primarily affect some mid-tier broadcasters and agencies in our audio and net-based scenarios. And shortly after the adjustments were announced regional tax authorities in certain areas reached out to their local MCMs to clarify implementation details. And this led to a noticeable decline in work enthusiasm among supply side. even before the adjustments were formally effective, resulting in revenue pressure for Momo app in the third quarter. Momo has maintained a relatively low revenue sharing ratio to broadcasters and agencies compared to our peers, thanks to our unique social attribute and agencies and broadcasters are willing to accept this lower ratio while still making considerable income.

However, this characteristic made some made them particularly vulnerable to these recent tax changes and especially some mid-tier agencies to protect the reasonable income level of our supply-side partners. In August, we adjusted revenue sharing policy for the group's mostly affected by the tax changes. This initiative led to a modest sequential revenue recovery in September compared to July and August. However, entering Q4 with the formal implementation of the tax policy adjustment and tightened regulatory oversight of the agency's tax compliance, we have observed further pressure on certain agencies and broadcasters and to partially offset these impacts, we have further increased the revenue sharing support for the supply side.

And this additional concessions are expected to reduce the group's gross margin by approximately 1 to 2 percentage points in the second half of 2025. On the revenue front, we had originally expected the year-on-year decline in the domestic revenue in the second half to narrow compared to the first half. However, based on the Q3 actual results and our Q4 current outlook, this improvement has not materialized to the extent anticipated. Furthermore, I would like to echo earlier remarks. As one of the China's earliest mobile social platform, Momo has maintained strong brand vitality to this day, driven by continuous product innovation and back-end algorithm optimization. Core engagement metrics such as tooling messages, in-depth, chat rates and user retention have continued to improve steadily.

In Q3, the launch of new scenarios, particularly audio and video chats, contributed to a steady increase in the number of paying users. This not only reflects continuous improvement -- improving connection efficiency between the platform and our users but also validates Momo's solid operational foundation and product innovation capabilities within this open social field. And coupled with our profit-oriented strategy and the team's effective cost control, we are fully confident that Momo will continue to deliver meaningful profit and operating cash flow to the group. And for specific figures, I will hand over to Cathy.

Okay. I'll look for the 2026 for domestic business, Thomas, you're right that based on our Q4 guidance for the full year 2025, our domestic business, including both Momo and Tantan is on track for a low teen percentage decline versus 2024. At the beginning of 2025, we had expected that exit rate of year-over-year decline to narrow to somewhere around or even slightly below 10%. That didn't happen because the tax group starting in Q3 had a meaningful negative impact on the supply side and before on revenue as well. That headwind was concentrated in the second half of 2025.

In our guidance, we assume that the domestic business is going to exit 2025 with somewhere around 13% year-over-year decline. So if you take that exit weight apply normal seasonality and roll that forward throughout 2026, what you will likely see is the -- in the first half of 2026, domestic revenue will probably still show a similar mid- to low teens year-over-year decline.

As we move into the second half of '26, the year-over-year decline is likely to naturally narrowed down. That's simply because the bulk of the negative tax-related impact hit the second half of 2025, creating an easier comp base for next year. So that's the modeling perspective. But remember that what math gives you is always going to be influenced one way or another by reality. And here are 3 fundamental factors I can highlight for you to address your model accordingly based on how you think realities will unfold in 2026. The first factor is always going to be platform fundamentals. On that front, both Momo and Tantan are in a much better position today. Momo's paying user count, as you can see, after a prolonged period of decline stabilized and grew in Q3, we expect that trend to continue into Q4.

Much of that is driven by the long-tail use cases we've added, including one-to-one video and audio chat. Tantan, after spending the last couple of years improving user experience is also moving in the right direction. So fundamentally, the platforms are solid. And this is not where we see major risk as we head into 2026. And then comes the second important fundamental factor that you need to consider, which is macro and consumer sentiment. For domestic value-added service, the macro environment in China and overall consumer sentiment remain the biggest swing factors for us. If sentiment improves, we can outperform the seasonality-based model. If not, you would probably need to adjust estimates modestly downward.

And the third factor, as always, is regulatory and taxation environment. Operating and product at regulations have been relatively stable for the past year. The near-term headwind is mostly concentrated on the taxation side. As we adjust payouts, agencies are pure satisfied with the profit level, they can retain on our platform. If that stability continues we can be more constructive about the revenue trend in 2026. So if you put everything altogether, if you take the Q4 2025 rate exit rate of roughly 13% decline for domestic business and layer in normal seasonality, you would probably arrive at roughly 10% decline for full year 2026. Then depending on macro be it economic or regulatory, you would adjust that outlook up or down. That's what I can point to at this point, about 2026. With that, back to Ashley to take the next question.

Your next question comes from Jenny Wang from UBS.

[Foreign Language] My question is regarding our overseas business. Overseas revenue grew 69% year-over-year in the third quarter, ahead of management's previous guidance of 60% growth. So could you please focus through which part of this is upfront expectations? And for the fourth quarter, we are guiding a 70% year-over-year growth in [indiscernible] revenue. So could you please break down how much of this is driven by the organic business? And how much is driven by the consolidation impact on the newly acquired happen? And given the trajectory, how do we expect overseas growth year? Is there a chance -- is it likely that overseas performance could fully offset the revenue decline in the domestic market?

[Foreign Language] Okay. So in Q3, the vast majority of incremental revenue comes from the overseas business comes from audio and video-based products in the MENA region and driven primarily by the 2 new apps. Ammar and Yahalan. Our core performance metrics for the overseas audience video-based business is [indiscernible]. So around midyear, as we increase the marketing spend, China ROI began to decline. So in response, we deliberately scaled back marketing investments and plan to resume more spending only after unit acquisition cost decrease or ARPU and gross margin improve. Accordingly, we also moderated our near-term revenue expectations for these audio and video products.

During Q3, the local team successfully drove ARPU growth through continued product optimization and deeper supply side partnerships, whilst simultaneously lowering revenue sharing ratios. These efforts led to a clear improvement in which in turn has allowed us to step up user acquisition investment again and resulting in accelerating growth momentum. And beyond the audio video products in MENA our overseas dating portfolio also delivered solid performance in Q3. Notably, following the brand repositioning led by the Singapore team, Tantan International has begun migrating users to its refresh international version.

The migration is progressing in line with our expectations. And both revenue and profit has stabilized and returned to growth for the first time in nearly a year and product features and new designs tailored specifically for overseas kinase users have laid a strong foundation for Tantan International to deepen this presence in Southeast Asia and other global markets. And furthermore, the AI-powered role playing dating app we launched in Japan a year ago, has made significant revenue progress. And we accept this contribution to overseas revenue to grow steadily as we continue upgrading the AI model and the product matures. On the M&A front, we completed the acquisition of the branch stating brand happened in September, and while its contribution to Q3 revenue was limited, it is expected to make a more meaningful impact on our Q4 overseas performance. As for growth outlook for next year, I will hand it over to Cathy for more details.

Sure. Let me take the more quantitative part of that question. As [indiscernible] mentioned, our overseas portfolio today is fundamentally very different from what it was a year ago. Before getting into numbers, let me add a couple of quick points that investors may have overlooked. First thing I would like to call out is that our international growth strategy has become increasingly multipillar supported both in terms of product mix and in terms of business model. From a product perspective, growth is no longer driven by one single engine. If you go back to the year 2024, the overseas business grew about year-over-year, and almost all of that came from [indiscernible] alone.

In 2025, we are on track to grow somewhere around 70%. And while social is still -- [indiscernible] still contributed meaningfully, another significant growth driver for 2025 has actually been the nonsocial brand. That piece grew close to 400% year-over-year in 2025, becoming a major pillar of our overseas business. And from a business model perspective, we are also diversifying. The overseas business is increasingly driven by the savings and membership-based model in developed markets. which include overseas Tantan Melamine, which is our AI-powered dating app in Japan happen and some other quality dating brands. As we move deeper into 2026, we expect the overseas portfolio to rest on 3 -- almost 3 equally through roughly equal weighted pillars.

One in social, the other is emerging social entertainment apps in developing markets and the third pillar is going to be dating membership brands in developed markets. Now turning specifically to your question about whether overseas growth can offset domestic declines, I would say that if you look at second half of 2025, at group level, we are seeing somewhere around 2% year-over-year decline. Were it not the test group need that hit the supply side hard top line could have turned positive in Q4. At this time, I don't have enough visibility to make that call for 2026 yet. But there are some high-level thoughts about different pieces within our overseas portfolio. Looking ahead, [indiscernible] will likely continue to grow though at a -- probably at a slower percentage rate as the base gets larger.

That said, I would say that there is a meaningful upside variable, and that is our push into live streaming and into wealthier golf markets. Historically, our strength has been in Turkey and North Africa. Success in the Gulf region and in live stream in meaningfully influence Social's growth trajectory in 2026 potentially helping stabilize or even reaccelerate its growth rate. Nonsocial brands should continue to deliver very robust growth next year. combined with the scaling of the [indiscernible] model, we expect these segments to become increasingly important contributors as we head towards 2026. And with that, back to Ashley for next question.

Next question comes from Leo Chiang from Deutsche Bank.

[Foreign Language] Let me translate [indiscernible] My question is regarding the company's [indiscernible] to ensure the key factor company focused on [indiscernible]

We didn't quite get your question. Can you repeat, please?

Is that better now? .

Yes, yes, we can hear that. We actually [indiscernible] of the Chinese part, but the English translation was not quite clear.

Yes. So question is regarding to the company's M&A strategy. Could management share the key factors the company focus on when doing M&A, such as industry, geography, revenue and profit and for the acquired products, will the company be actively involved in the business management?

[Foreign Language] Since the launch of our first LBS based social product normal in 2011, our company has transformed from the past 14 years from single product company focused on DAU growth in China market into a diversified group with more than a dozen brands. These brands cover a wide range of niche markets and user segments, both domestically and internationally. In addition to organic development, acquisitions have been another key growth strategy since 2018. Whether through organic development or M&A, we have consistently stayed focused on our core strengths in the social engaging sector. And reason, yes, as growth in the domestic market has slowed, we have shifted our strategic focus overseas to capture new growth drivers. And in less than 5 years, incremental revenue from overseas products has largely offset the decline in our domestic business.

We do not have reached the criteria for M&A targets. However, looking at the appreciations we have completed so far, they share several common characteristics. Firstly, we must fully understand and recognize the value of the product, the team and the business model and we must be confident that the group's resources can help unlock greater potential. And second, we need strong confidence in that the target ability to achieve sustainable profitability. And third, of course, the valuation must be reasonable. Regarding post-acquisition management and the degree of our involvement, it varies on a bis-by-case basis. if the original team is better positioned to run the business than we are, and we tend to delegate full authority to the local team while providing necessary support functions. And if the local team ever needs us to dive in detail we are more than happy to engage in hands-on daily management. So overall, our level of engagement with acquired companies is tailored to the specific circumstances rather than following the sale. So I hope we answered your question. In the interest of time, operator, let's just take one last question before we close the line.

Your final question comes from Xueqing Zhang from CICC.

[Foreign Language] [indiscernible] mentioned that the fastest growing overseas audio and rebased social business has a lower gross margin compared to domestic 1. Additionally, [indiscernible] revenue ratio. So how should we view the -- over our gross margin going forward. more than many of our leases initiatives are still in the investment phase so that it implies that your profit margin may further decline next year. And this impact divisions regarding shareholder returns.

Okay. Let me try to answer the margin profitability question first. First, it's still a little bit early to be very prescriptive about 2026 margins. Our portfolio today is more diversified than in prior years with products carrying very different margin profiles. But I can share a few directional points that should help frame expectations. Number one, on the domestic business, you are correct given what we saw in the second half of 2025, domestic gross margin will likely be down a couple of points. The exit rate is going to roll into 2026. On the operating expenses front, we do see room to further optimized, so we can mitigate part of the pressure at the operating profit level.

But with both revenue and gross margin trending lower, bottom line for domestic business will remain under downward pressure in 2026. Number two, for the overseas business, margins look different by product category. On a stand-alone basis, most overseas products are actually seeing stable or improving gross margins as they scale. The key factor is the mix. So [indiscernible] products carry lower margins due to payout and revenue share arrangements, while the subscription and dating business carry significantly higher gross margins with no payout component. As these categories grow at different speeds, mix will be a bit hard to pin down at this point. Given these moving pieces, the most practical approach now is perhaps to anchor on the Q4 2025 exit level which, based on our guidance, should be about 36% to 37% adjusted gross margin.

Some forces push it upward, some forces push it downward, we'll have clearer visibility after we complete our annual planning and can give you more specific color during our next earnings call. On the group level profitability outlook, it's true that we remain in an investment phase for our overseas business. But investment does not mean we are loosening our discipline. We continue to apply very strict ROI filters and we will not pursue top line growth by sacrificing profitability. At this point, our expectation is that the overseas business will look probably not be meaningfully offset the domestic profit pressure in 2026. But at the same line, it will not be a significant drag on the group bottom line either.

So overall, we do expect some compression in profitability next year, but largely from domestic business, not really overseas business. And finally, regarding dividend and shorter return expectations. Profitability for -- you're right, that profitability for a particular year is factor in determining our cash dividend, but it is not the only factor. Apart from that, we also evaluate some other stuff such as potential M&A requirements and strategic cash needs. The other thing is liquidity and repat creation capability from our onshore entities to the holding company. And then there is also -- there's always going to be the balance between cash dividends versus share repurchases consideration. All of these elements would go into the board's decision-making process. We will provide more clarity after we finalize our end plan.

But the guiding principle remains unchanged, maintaining disciplined, balanced capital return framework while ensuring that we have the resources to invest in long-term growth. I guess that wraps up today's call. I'm handing over to Ashley to close today.

Well, thank you very much for joining us today. So we'll see you next year, and happy holidays. Bye.

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

Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2025 Hello Group, Inc. Earnings Conference Call. [Operator Instructions] 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, 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&A session that follows.

Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Zhang Sichuan. Mr. Zhang, please?

Thank you. Appreciate it. Hello, everyone. Thank you for joining our call. In Q2, both our domestic and overseas business continued to see 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 RMB 2.62 billion, down 3% year-over-year. Domestic revenue reached RMB 2.18 billion, down 11% year-over-year, while overseas business was RMB 442 million, up 73% year-over-year. Adjusted operating income was RMB 448 million, 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 the 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 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 our healthy social ecosystem. In Q2, we fully rolled out in-house developed AI greeting feature, which helps male users to generate personalized greeting, driving the required rates up by a high single-digit percentage. Using our use of AI to enhance icebreaking chat experience, we have also been testing an AI chat assistant feature, which provides content suggestion for male users during the ongoing conversations. This feature drives an increase in number of multiround conversation and offering in-depth chat, thereby improving retention and playing positive growth 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 ARPU users and drove sequential growth in ARPU by enhancing the on-boarding experience for paying features among users from these channels. The reduction in unit acquisition costs combined with the ARPU growth drove further improvement in ROI, which has 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 enhancements and algorithm optimization as well as the ability to accommodate channel users more effectively.

In Q2, Momo app 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 abandon, 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 experience and our user acquisition strategy also evolved to achieve ongoing improvements 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 the cash -- of Momo cash cow business. In Q2, Momo value-added service revenue reached RMB 1.85 billion, 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 macro environment. In light of this, we increased operational efforts in chat room experience, which is popular among mid cohort users. We adjusted common recommendation algorithm to enhance penetration rates and user scale of the audio and video-based experiences thereby stimulating consumption amongst mid cohort users. After the seasonal lows 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 gifts that further 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. VAS revenue increased 4% from last quarter.

Turning to Tantan. In order to maintain profitability amidst revenue pressure, we continue our strategy of reducing channel investments in Q2. A plan initiated at the start of the year with a target ROI of over 100%, we further scaled back budgets for underperforming channels. This decrease in channel traffic puts some pressure on the overall user scale. However, organic user growth show a positive trend since the beginning of the year and increased steadily over quarter-over-quarter, which potentially offset the decline in user numbers caused by the reduction in marketing expense. In June, Tantan's MAU reached 10.2 million, down 5% from last quarter. As of the end of Q2, Tantan has 740,000 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 projects, there was a slight quarter-over-quarter decrease in paying ratio.

Turning to Tantan's financials. Revenue from the onshore business in Q2 was RMB 160 million, 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 ARPU increased 18% year-over-year and 8% quarter-over-quarter, which partially 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 verification to enhance user authenticity and brand trust.

Number two, we're focusing on the core dating experience by simplifying the UI layout to focus on key information, while downplaying noncore dating features such as feed and group chat. The improvement in user experience has 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 metrics and monetization 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 cost narrowed significantly and ARPU rose slightly compared to last quarter. In Q2, ROI remained stable at a level far 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 operations of core cities and user groups. The differentiated product design and pricing schemes has driven a continuous increase in ARPU, resulting in 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 RMB 442 million, 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. So Soulchill product optimization to the chat room experience, boosted both the paying conversion ratio and the paying user accounts, thereby driving the crucial revenue growth from a high base. For Yahalan and Ammar, the local teams drove growth involves the number of paying users and ARPU 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 Soulchill'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 stand-alone 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 2 new apps. Therefore, we decided to move a bit slowly on the marketing expansion plans, focusing on improving ARPU 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 group from entering an awkward situation, where the rapid 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 product in the MENA market. Another key focus of our overseas business lies in the dating market across developed countries.

Turning to the overseas dating products led by our Singapore team already contributed a double-digit percentage of our total overseas revenue, primarily driven by Tantan International. After checking over last year, the Singapore team, reevaluated 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 core dating experience. Based on this, we have reshaped the product and branding. After 1 year's effort, Tantan International revenue has now stabilized. Moving forward, we will focus on dating and the growth opportunities in overseas Chinese communities and the Southeast Asia market. We plan to take Tantan International as a pilot project to deepening our presence in our overseas dating field, providing users with some 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, Sic. 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 RMB 2.62 billion, down 3% year-on-year, but up 4% quarter-over-quarter. Non-GAAP net loss was RMB 96.0 million compared to RMB 449.2 million 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 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 operations of the current and future periods. Excluding this special item, non-GAAP net income for the quarter would have been RMB 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 RMB 2.58 billion, down 3% year-on-year, but up 4% quarter-on-quarter. On a user geography basis, PRC Mainland SaaS revenue was RMB 2.14 billion, 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 Momo business, and, to a lesser degree, a decline in Tantan paying users. The sequential increase was primarily driven by the recovery from Q1 seasonal weakness.

VAS overseas revenue came in at RMB 440.7 million, 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 RMB 1.60 billion compared to RMB 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 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 structure -- infrastructure expenses accounted for a larger revenue proportion due to geographic mix tilting towards international operations, where fee structures are systematically higher compared to domestic business.

Non-GAAP R&D expenses for the second quarter was RMB 172.0 million compared to RMB 179.7 million 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 employees for the group was 58% compared with 62% from Q2 last year. Non-GAAP sales and marketing expenses for the second quarter was RMB 339.7 million compared to RMB 360.6 million 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 reinvestment for the overseas app. Non-GAAP G&A expenses was RMB 67.5 million for the second quarter compared to RMB 89.5 million for the same quarter last year, both representing 3% of total revenue. Non-GAAP operating income was RMB 447.7 million with a margin of 17.1% compared with RMB 476.5 million 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 RMB 638 million for the quarter. In Q2, the company accrued withholding income tax of RMB 578 million, of which RMB 547.9 million was a special item -- special nonrecurring 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 WFOE 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 authorities most recent interpretation and position and have complied accordingly. Among the total amount accrued, RMB 356.1 million was related to dividends paid by WFOE in 2024 and in the first half of 2025, and this amount has been paid in September 2025. The remaining RMB 191.8 million was the additional 5% withholding tax accrued for the undistributed retained earnings of Momo 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 WFOE. Without 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 RMB 12.39 billion compared to RMB 14.73 billion as of December 31, 2024. The decrease in cash reserves was largely attributable to the repayment of RMB 1.76 billion bank loan, including accrued interest in the first half of 2025. Additionally, in Q2, we paid an equivalent of RMB 346 -- we paid an equivalent of RMB 346 million cash dividend to our shareholders. Net cash provided by operating activities in the second quarter 2025 was RMB 250.1 million.

Lastly, on business outlook. We estimated our third quarter revenue to come in the range from RMB 2.59 billion to RMB 2.69 billion, 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 speak Chinese, please ask your questions in Chinese first, followed by Enrich translation by yourself. Thank you. And operator, we're ready to take questions, please.

[Operator Instructions] Your first question comes from Thomas Chong from Jefferies.

[Foreign Language] We have seen Momo fundamentals in first half came in better than expectations set in early 2025. Can you talk about our second half outlook. On the other hand, we just talk about different AI tools like AI greetings and AI chat assistance. Can you also talk about what are our thoughts and strategy on AI application?

[Interpreted] Let me translate this first. So Momo VAS revenue achieved a sequential growth in the second quarter, primarily due to seasonal recovery. Additionally, with some of the relatively stable consumer sentiment and regulatory environment, we took this opportunity to organize a number of nonbonus-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 this 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 profit. 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, 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 platform.

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 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. And Chinese users generally struggle with icebreaking conversations, which posted a significant barrier to building new connections and maintaining ongoing interactions. This has been a key user of 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 observed a strong evidence of this. We believe AI has broad application potential in this area, such as offering chat advice and providing other similar systems functions. In addition to existing applications, we have recently launched a stand-alone AI character role play in chat in Japan. Users can choose their preferable IPs and storylines to get engaged in chats and role playing. This app is currently doing very well in Japanese market, and we have initiated preliminary monetization 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 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.

Your next question comes from Leo Chiang from Deutsche Bank.

[Foreign Language] Management mentioned in the prepared remarks that the company has taken measures to restructure the membership package and require 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?

I will take this. So the recent Tantan 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 Tantan. However, this improvement has resulted in users who are paying less, which has put some pressure on revenue. To address this in Q2, we adopted a user classification approach, specifically with group user based on whether they have complete real personification, engagement level, paying history and factors such as appearance. For different user groups, we implemented tailor 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 ARPU.

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 core dating features by streamlining the previously clutter 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 user retention. Previously, the vast majority of new users on Tantan were acquired to pay 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 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.

Yes, that's it for the answer.

Your next question comes from Yicheng Yuan from UBS.

[Foreign Language] So we've seen like overseas revenue grow over -- grew by over 70% year-over-year for 2 consecutive quarters. So could management please share your views on sustainability of the strong growth? And what are your expectations for overseas revenue in the second half?

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, Soulchill has maintained steady growth momentum. The accelerated growth in the first half of the year is mainly driven by continuous breakthrough with Yahalan and Ammar. Despite the ongoing increase in channel investments, the ROI has constantly met target, 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 process requirements set by the group, aiming for higher growth will sacrifice on profits, and we are conscious about this risky growth model at the moment. So in Q2 and Q3, we will focus on increasing ARPU and optimizing user acquisition costs.

Although year-on-year growth may slow slightly, these 3 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 operation and other overseas dating products that managed by our Singapore team. We have also recently completed the acquisition of the dating app brand [ Happn ] although this scale is larger, 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 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 Cathy.

Okay. Sic 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 our -- some of our emerging brands. As Sic mentioned, we could have moved a little bit faster in Q2 in terms of top line growth. However, we purposely slowed down a bit towards 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, nonsocial 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.

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.

Your final question comes from Xueqing Zhang from CICC.

[Foreign Language] The management just share the revenue outlook the second half of this year. And I would like to know if there will be any change in terms of profit margin. In particular, regarding the withholding tax issue that Cathy just mentioned in the prepared remarks. 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 process.

Okay. On margins, it's hard to separate the discussion on margin 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 tightened up in tax scrutiny affecting a lot of our performers and agencies. And of course, macro remains an 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 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 the low teens year-over-year decline for domestic revenue, offset by strong growth in overseas where we anticipate a year-over-year growth around 70% taken 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 oppose one another. First, we are slightly raising payout ratios to support domestic agencies as well as performance as they adapt to the new tax environment, that could mean a 1 to 2 percentage point increase in overall payout on Momo. Second, as the overseas revenue contribution becomes increasingly meaningful, mix shift 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 facing 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 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 the 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 towards 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 interpretation. 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 advisers who have been involved all along in this specific matter as well as the dialogues with the authorities, it 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.

Yes. I think times up. So let's call your day, and thank you for joining us today, and we will 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.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]