Q2 2020 Momo Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to second quarter 2020 earnings conference call at this time. All participants are in a listen-only mode after the management prepared remarks. There will be a question-and-answer session. If you wish to ask a question. You may press star one on your telephone. Please note this game is being recorded today. I would not like to have the conference over to your first Speaker. Today is Cathy Pence. Thank you, please go ahead ma'am. Hello, and thank you for joining us today for 1 more second quarter 2020 earnings conference call. The company's results were released earlier today and are available on the company's I our webpage on the call today from alarmist Italian co-founder chairman and chief executive officer. Mr. Wang Lee president and Chief Operating Officer Mister. Mr. Wang found her dead.

Chief Executive Officer of Taunton and mr. Jonathan jump Chief Financial Officer. They will all they will discuss the company's business operations and highlights as well as the financial and guidelines. They were 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 provisions of the private Securities litigation Reform Act of 1990. Such statements are based on Management's current expectations and current market and operating conditions and relate to the events that involve known or unknown risks and uncertainties of factors 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 for the information regarding these and other risks and uncertainties and factors is included in the company's filings with the US Securities and Exchange Commission. The company does not undertake any application to update any forward-looking statement as a result of new information future events, or otherwise except as required under law. I will now pass the call over to mister Tom. I will translate for him.

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Shamir welcome off

Good morning, and good evening everyone. Thank you for joining our conference call today was a busy quarter for a although the economic impact from the pandemic still lingered. I have seen user engagement improving at a steady Pace normal and sometimes.

With things gradually coming back to normal on the traffic side starting from our teams have stepped up the efforts to drive toward our strategic goals. Now, let me quickly walk you through the key operating a financial results for the quarter. We are also going to give you an update on the company's priorities for the year and how we are going to approach them in the coming few quarters.

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Firstly a brief overview of the financial performance for the second quarter 2020 total revenue was 3.87 billion Renminbi down 7% year-on-year, but up 50% quarter-over-quarter adjusted operating income for the quarter was 1.04 billion be representing a 27% profit margin.

Excluding how has lots adjusted operating income for the quarter mile was 1.1 billion Renminbi were a 33% profit. Margin on hand side. I'm glad to see that are testing with a live broadcasting service started gaining Traction in the second quarter. Although the membership service was struck hard by The Cove it and the associated with dating activity total revenues. I still grew 82% year-over-year and 35% sequentially to $570 million for the second quarter driven by the rapidly ramping up live broadcasting. I improved tons adjusted net loss also narrow down to 70 70.79 million for the second quarter wage.

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No deeper dive into other aspects of the quarter first operating metrics as the Kobe impacts began to tell out in the second quarter and the lock down substantially relaxed within China the social sciences and also recovered gradually the number of enemy you grow 3.5 million during the quarter to 111.5 million month in June total time spent also saw a substantial improvement from the previous quarter as the use the use of the platform recovered. The number of paying users are more more also offer a $300,000 nine Edition from the first quarter to eight point nine million in the second quarter of 2020.

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Who needs a time time I experienced rapid user growth during the two weeks following the Chinese New Year holiday. However, the growth momentum was disrupted by the continual spread of the coronavirus and the waning dating sentiment as a result of that unlike normal. We are a big variety of alternative social entertainment experiences is available compound was almost purely about converting online matches to offline dating activities before through to therefore compared to normal Penta was struck Harder by The Cove it and the recovery also happened later than it did on the morgue.

I already made the lock down in most parts of China had been lifted and therefore we were able to see a recovering Trend in the number of active users on campus. We are very optimistic about the user growth outlook on 10th and post code as the team continue to improve his user acquisition efforts. And in which the product experience on the platform. These are also the two most important priorities. Team in the coming three quarters.

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More time to recover then the overall you such an effect has caused the pain user recovery to temporarily lag behind the resumption of the growth in 2283. That paying users have already gone back to the gross tracks while you will have more details for you than later.

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Now that we are entering into the postcode with the team are able to focus fully on the Strategic priorities for the long-term. Now, let me take you through the updates on several important projects that will stay on Management's agenda for the coming few months associate with this is amiad.

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First and foremost improve the product and operations are moment in time in order to better serve the user social demands. One of the critical steps we need to take on that front is to enrich the product experiences on sometimes we have always believed that in order to drive better user engagement and improve long-term retention companies to supplement the course like a message Jillian's with retro features and services as Alternatives late last year had had introduced a flash at experience which was the first step toward that goal.

It was preventing you want the flash had played a positive role in driving user engagement as well as my monetization all that success with significantly accelerate the pace of product innovation in the second quarter on April 7th. We fully roll out the nearby post feature on time, which is an important move in improving a community experienced users also extends the wrong way of exploring other product Innovations down the path in mid April. We started accelerating the page in testing another important serve the library Custom Service on time until now Within

Four months into the pilot phase the results obviously have exceeded our original expectations. It proves hour earlier belief that live streaming cannot only be a powerful Revenue driver also compliment the coordinating experiencing a very positive positive way. Although at this point, we're still at the testing mode and the team is is focused on improving the productivity content experience instead of driving manipulation. It is already becoming clear that time time as the second growth engine for the company is beginning to gain traction wage. What do you think?

Besides the nearby post and the library casting service campaign is also making impressive progress has multiple other fronts long as you will have more details for you again later wage.

Thought you said well my child and teach English in Chinese. I hope she say she took a quick update on the core Momoa in the second quarter. We made several optimizations to the basic social experiences on the platform. For example, we upgraded the the onboarding experience for the new users and resurrected users making it easier for them to build meaningful connections. We also adjusted our recommendation engine to push dormant relationships to some of our old users dead.

You order to reactivate the conversations these efforts aimed at?

Aimed at enhancing the user experience and improving the retention when the users came aboard are more from the long period of social distancing as a result in June. We saw a meaningful embankment in the retention ratio for the new users and resurrected user gym.

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Lastly I'd like to spend a few minutes discussing an important Endeavor that we haven't undertaken lightly as many of, you know, since the beginning of the year the economic impact from the covid-19 have been pressuring the light broadcasting revenues and more more core.

A considerable number of our high paying users are private business owners whose Financial conditions have been adversely affected by the pandemic. We believe that the macro factors make sure to be a headwind for the top spending during the past couple of years, especially in the back half of 2019 or more courses. I broadcasting business had become more reliant on the tip of the pyramid users as well as the top of the tournament broadcasters.

View of the current macro condition we believe it is safer to reduce the revenue concentration on the top and move the spending more toward the middle layers within the permit off as a matter of fact early last year. We already made some efforts to stimulate the middle cohort spending which generated some positive outcomes. However, long one more fundamental product and operational changes are needed in order to reduce the dependence on the top in a more meaningful way and at the same time improve the long-term country in court system. The adjustments will cover a wide range of areas within the library casting ecosystem including traffic directions strategies product design and content operations as well as Thursday. We managed the competition event and the agencies our president of the old one. We will discuss the adjustment plan in more details later as the plan involves the changes on multiple products and authors.

No problem short-term Rising me create some pressure on one more quarter advertising revenue and gross margin, especially in Q3 We Believe.

The pressure should be fine as long as the strong growth from Canton and the solid performance foremost that will keep the revenue relat relatively stable.

During the transition period and we expect a live broadcasting revenue on the core to see gradual Improvement in Q4 more importantly. I'm also a firm believer that when we walk out of life transition. We're going to see a revenue structure that is more resilient in the current environment as well as vibrant and lots of vibrant and longtail driven content ecosystem that supports long-term growth for 2021 and Beyond the wage increase your car Clinic lie on your sheet.

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Coffee. I'm pleased to announce that today our board approved a three hundred million dollars share repurchase plants. This program will allow the company to capitalize on attractive choices to enhance your holder value similar to the dividend payments that we've announced in the past this share buyback plan demonstrate our long-term commitment to maximizing shareholder value package as well as Management's confidence in the future of the business. Thank you for trusting more teams. And here is one going to review the business updates one of them frees Thursday. We are you able to eat?

Now, let me take you to the crevasses. We've made across our business line off when he comes home.

Firstly online broadcasting total revenue from like broadcasting business for the second quarter 2020 was 2.6 billion MB down 16% from the same period last year, but I'm not 12% from the previous quarter. The sequential increase was largely driven by the rapid growth from Patton Drive live streaming service and to a lesser degree the gradual Improvement in normal course, lie broadcasting business as many of you know, ten that has been accelerated accelerating the testing of the sly Broadcasting Service since mid-april. The testing results have been very encouraging while you were share more details in his remarks later. So I will be mainly focused on the corner of 22nd Avenue South

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One more question advertising revenues total of 2.41 billion Renminbi for the second quarter down 22% from the same period last year but up 4% off quarter.

During the second quarter as the traffic gradually recovered we held a couple of events trying to test the water for the consumer sentiment, especially that among the top Spenders. Although we did see some incremental Revenue contribution from those events. We could clearly see that the overall spending sentiment from the top remained week according to our survey wage has any total conversation from some of our high paying users the significant portion of them own business in manufacturing and conversing the trees in coastal regions such as fujian long. It may take some time for these business to fully turn around due to the situation of the pandemic Global Life.

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Well, it's hard to predict how the overall macroclimate they may develop in the coming few quarters as the platform operator. We did take considerable efforts during the past couple of months to study. What are some of the changes that we can affect within our own company in court system. So that a lot of work has been business can continue to grow healthy and the new external environment off now, let me share some of the findings from our studies. First of all like Tanya said,

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Our labor casting business has become heavier on the top both in terms of Revenue contribution. And in terms of traffic on both supply-side and demand-side situation was due to a number of different reasons, including the evolution of our traffic allocation system the way we set kpis in the agency incentive program as well as certain interactive features an operational efforts that we wrote out to boost up spending as a result middle and entry-level performers are getting insufficient traffic support which further cost accountant Quality Inn long time to descend having a vibrant long tail County ecosystem has been a key competitive competitive advantage of normal as a social platform. We need disadvantage to be strengthened not weakened, especially in a challenging macro-environment. Yep.

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Identifying these issues. We have put together a plan to address them key things under the plan include adjusting the traffic allocation strategy to redirect them from large channels two smaller ones investing in new features and operational events to beef up the content experience in the long tail showrooms and adjusting the kpi system for agencies as well a Reinventing the competition event with the purpose to focus Less on revenue and more on content and supporting new talents the plan also involves adjustments to certain in Iraq and related operational policies that can be a strong stimulator for top spending but long-term wise may not be beneficial for the Continental System.

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The address and upon could put some temporary pressure on both revenue and gross margin for normal course live broadcasting business. However, the robots goals of the vast business and the strong momentum Taunton presents a good opportunity for us to carry out the structural reform because these business lines will keep the overall revenue of the company stable during the transition period is almost here talking about this is only go off five weeks into the program. The company called system is now beginning to see some initial signs for improvements Revenue After experiencing strong volatility is in early August also has table

these facts give us the optimism that the worst of the impact should have been absorbed and that live broadcasting revenue for the court should be

Graduating person as a company called system continues to improve took off and left. So why do we do now that

Counseling spots revenues from from value-added service which one point two billion women be up 27% year-over-year again. I'll be faxing almost business as Popeye's part too long a bit later revenue from that on tam-tam basis, which 879 million Renminbi second quarter of 2020 up to a year on a sequential basis less revenues on the court will 10% driven by the recovery of traffic as well as the growth momentum from some of the keep a experiences with him or not here if you don't tell me don't tell Sheila.

During the second quarter the audio and video social entertaining experiences continues to generate robust growth for bats The Continuous momentum from the from the category was driven by choice of product and operational ideas from the team. For example, we introduced a few new mini games into the chat room experience such as karaoke show and French trade. We also revamp the game in the real world experience which successfully successfully put this relatively order experience back onto the growth tracks. So she must join them know you are dead to listen to this is she dead.

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No it in the pocket of new experiences hers a stand-alone audio dating application and Matchmaker a video dating experience within the corps Memorial continue to progress well in a second quarter, the retention ratios were both products improved steadily, which is the foundation of user growth and also the most important targets for these early-stage Endeavors at the same time. The team is also actively exploring different monetization opportunities Within These New Generation Innovations. We believe the revenue contribution from the new book is will continue to improve and become a meal for driver next year since birth birth.

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No briefly on other business business lines.

Mobile marketing Revenue was 37.96 Million MB down from 76.21 million women be the same period last year the decrease was dead option of both macro headwinds and our strategy to underweight the line in terms of resource allocation. This year jointly operated game business continued to Trend down in Q2 and will likely forget trade around the current level for the coming few quarters with the corps Memorial now, let me hand over to mr. Wang before we make sure we have time for product and Business Development. Mr. Wang, please think so, let me page sometimes operational and business development in the past quarter in The Next Step plan.

First on user Trends related metrics ton symmetric domestic you showed robust growth momentum after Chinese New Years in mid-February. The gross was disrupted by the escalation of the covid-19 outbreak and you started declining rapidly by early May the epidemic within China a largely under control and the social distancing measures were largely relaxed after the May holiday. We were able to see things sentiments and the user engagement gradually coming back by the end of June something domestic you had rebounded by around 10% from the bottom seen in early April.

No briefly on used friends outside China since the beginning of 2020. We've been pulling back the resources from developing countries such as England and India and beefing up efforts in developed regions instead as I mentioned before our overseas strategy is primarily primarily geared toward revenue and profit. Although developing countries can provide a large user base. There are approved we can get under the subscription model from those regions is too low to take the profit in a meaningful way.

Walden the developed markets where the our pool is much higher with the greater opportunities to obtain better RI of a much smaller do surveys as a result of the Strategic they'll receive you turn it down in the first half of 2020 but revenues from our overseas markets continue to grow at a healthy Pace despite the headwind from the covid-19 pendant.

Within our overseas development plan. We still see huge gross opportunities in developing countries. However, based on our understanding of user behavior in Psychology. We believe that as compared description model pay-per-use value-added Services should make much better sense in terms of our development as well as being Market. Our strategy here is to go back into these markets one. Once we establish a solid down subscription Revenue model in China.

Now turning to paying.

Thing users for the second quarter on compound total 3.9 million down from 4.2 Million last quarter as counsel mentioned wage Kobe not only hurt you but also as adverts adversely affected the propensity to pay from active users as a result off during the social distancing. The Ping ratio saw a meaningful decrease and the recovery of it also lacked recovery of Dover of the U.

costing a temporary lab between the resumption of paying user growth and the rebounding the are you

we entered into Q3 the lagging effect began to tell doubt and the Ping use account has been cashing up as a matter of fact after August 31st. June number of paying users balance back to 4.1 million with A continuous upward trend.

I'll briefly on revenues.

Total revenues for a second quarter of reach 517.2 million up 82% year-on-year and 35% quarter-on-quarter driven a strong momentum from the light broadcasting business which significantly lifted are people this subscription business shows a downward Trend in the second quarter largely due to the cold with impact month. So lesser extent introduction of live streaming business also had some negative impact on the subscription business, which was within our expectations based on AP testing results with the nipple istic effect is about 10 to 15% of the subscription Revenue, which is quite manageable with the continuous recovery of the we expect tons vast business office to resume growth in Q3.

So let me give you an update on the promises that we made on a number of other strategic runs during Q2. First of all really enriching the product experiences in the second quarter. We significant accelerated effort in building features and services beyond the course wiping experience. The goal is to improve the long-term retention account, which is a critical factor in the user growth of Nick equation month in April. We fully launched a nearby post features. It allows sometimes users to discover new relationships and build interactions over contents rather than purely based on the profile information of his wife is flashing. Is it related operational effort? We introduced the hashtag section within the posts so that the user is would have interesting and meaningful topics to talk about further helps a ton of users more effectively connect with each other.

In mid-april to start it says tracking another important project the testing of live streaming service on TomTom up until now the light Broadcasting Service has already covered millions of views on the platform the data that we have seen so far has proven to important things that provide guiding value on our future path of development. Number one. It happened if if handled properly live broadcasting potentially other peripherals experiences can be complimentary recording experience, especially for users to find it less effective to connect and interact on the swipe and matchmaking this and number two. Tom Tom has a great deal of growth potential dying in light bracket broadcasting as well as in other forms of paper use value-added services.

looking into a rest of the the year our primary focus were like

I Broadcasting Service is to improve the product experience a lot of what we do will revolve around improving the recommendation engine beefing up the content experience and testing ways to better integrate live streaming service into the application that you can serve more times than users in need. We will also like to carefully manage the page Revenue growth to avoid any unexpected adverse impact on a dating ecosystem as we first pushed the boundaries on the product side. We also believe that what defines sometimes is our core Mission which is to help young people discover new relationships and build interactions were romantic purpose the course wife and match experience continues to play the most important role in competition that mission therefore while diversifying into other products experiences. We also dedicate significant resource in making the quote dating experience better.

Currently we have several key projects in the testing phase such as revamping the profile page with enhanced personal description and contents as well as furthering the real person verification system from photo verification ID card verification, all of these product efforts same as delivering a better dating experience to come and users in a more secure environments. This is still a single most important values as we would like to deliver to our users. This is also the thing most important goal. We need to accomplish in order to keep expanding our user base. Everything else will be secondary to that mission.

Under that same principle on the month of the inside. We're also working hard to develop new vast service features based on the coordinating experience. Some of these are new features and some of them involve repackaging and repricing the existing features. The lab results have come back quite positive. So we are very optimistic about the growth opportunities for both the second half and Beyond those are the key see things that I like to cover for today. Now, let me pass the call over to mister Johnson John for financial review shopping. Thanks wage. Hi everyone. Thank you for joining or conference call today. Let me briefly take you through the Financial reviews.

Total revenue for the second quarter 2020 was 3.87 billion MB down 7% year-on-year up 8% quarter-over-quarter. I'm not getting that income attributable to normal. Would 669.8 million R&B compared to 1.24 back in R&B from the same. 2019 or a 46% decrease year-over-year during the second quarter the company repatriated 8.2 billion R&B from the goofy.

Legal entity in China and incurred 220 million R&B in income tax expenses, excluding this special item non-gaap income for the quarter would have been 889.8 million R&B.

I mean jump directly into the review of causing the expenses items as Revenue line items covered comprehensively by Wally and while you or not cuz of revenue for the second quarter of 2020 with 2.01 billion women be compared to 2.04 billion.

for the same period last year

cost of Revenue as a percentage of total revenue was 52% increased from 49%

In Q2 2019 non-gaap gross profit margin for Q2 2020 was down by three percentage points year-on-year. The decrease was attributed to the following four factors. Number one Higher payout ratio from Life broadcasting business are more more money to hire Revenue contribution from agency representative representative broadcasters number to higher payout ratios from vast business.

Due to the strong momentum coming from the audio and video social entertainment business.

A bigger part of which involve third-party professional hosts number three lower gross margin from 10:10 at its life broadcasting business is becoming sizable during the quarter.

And lastly certain things Nature Calls items such as head counts and depreciation of fixed assets related impacted the gross margin negatively off at the total revenue declined and those items represented a higher percentage of total revenue.

R&D expenses for the second quarter was 226.6 Million MB compared to 204.8 million for the same quarter last year representing 5.9% and 4.9% of the total revenue respectively the increase in R&D explain what mainly due to the account increase we ended the quarter with 2362 total employees of which 712 are formed ten times the R&D personnel as a percentage of poor lowly employees for the group was 60% compared to 54% during a cute your last year.

non-gaap sales and marketing expenses for the second quarter was 590.7 Million MB war 15.3% of total revenue compared to

502.3 million MB or 12.1% of total revenue for the same period last year the year-over-year increase in sales and marketing expenses was mainly due to the higher marketing spending for ten times as well as marketing spending more more more new product initiatives.

On a sequential basis the sales and marketing expenses decreased by 8% because of the marketing spending in connection with more most year-end live broadcasting birthday event, which happened in the early January this year.

Non-gaap tiene expenses was 91.9 million MB for the second quarter of 2020 compared to a hundred nineteen point four million R&B for the same quarter last year representing 2.4% and 2.9% of total net revenue respectively get operating income with 1.04 billion R&B a decrease of 28% from 4 to 2019 representing 26.8% Non-gaap operating margin for the quarter down eight percentage points from the same period last year

I'll briefly on income taxes the company repatriated 2.2 billion R&B from our goofy in China to our offshore entity including to in order to replenish our US dollar funding.

In accordance with respective taxation laws of China the company paid 10% war two hundred twenty million R&B withholding tax to Chinese tax authorities. This payment was recorded as income tax expenses for the company during the second quarter 2020.

Excluding the withholding tax payments. Our non-gaap effective tax rate would have been around twenty 1% in two thousand to twenty twenty now turning to the balance sheet and cash flow items as of June thirty two thousand twenty Twenty-One months Cash Cash equivalents short-term deposits and long-term deposits totaled 15.38 billion Min be compared to

15.23 billion b as of December 31st 2019 in the company paid approximately an equivalent of 1.1 billion month special cash dividends to most to shareholders net cash provided by operating activities in the second quarter was

7.3 million or maybe

Lastly on the business all look we estimated our third-quarter Revenue to come in the range from 3.7 billion to 3.8 billion. Let me be representing a decrease of 16.9% to 14 6% a 14.6% year-on-year and 83 of 4.3% to 1.8% quarter-over-quarter. Please be reminded for that this forecast represents the company's current and preliminary review month 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 Kathy for you know, just a quick reminder before we take a questions for those who can add those who can speak pig.

Please please ask you a question in Chinese first followed by English translation by yourself. And also please leave me the number of questions to maximum to so that everybody else opportunity to ask questions operator ready for accounting. Please please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hashtag.

Your first question comes from the line of of wage going to ask you a couple of Peace same time, Could you you said last part in that play bass solo the trend. That's my first question. And my second question is about the second half outlook on time, especially along the team metric suggest paying juices and revenue on top of that if there's any separate color for live streaming and fast line. Yep.

Thank you. Let me take a take a couple of minutes to translate the first question. I think Thomas wanted to understand the game, you know how exactly the overall adjustment plan is going to impact the revenue in the second half of the year. And also, you know, I would appreciate management to provide some quantitative guidance regarding the specific impact from from the adjustments. And also what management management view about the long-term Revenue transfer more coarsely broadcasting business as well as the overall Top Line at the company level.

11:00 to know what happened is not a good contact number. She he pulls her off but to them the four-minute shoulder don't weeks old and she came home the first part as we mentioned in the as we mentioned in the prepared remarks the adjustment plan that we are currently implementing.

Touching many different areas on the product side and on the operational side some of the measures when initially implemented are going to have some negative impact on some of the top users and some of the top broadcasters as well. In addition. We are also making adjustments to the kpi system of the agencies as well as life structure in the way. We build the competition events and the principal here is to gear these systems more toward continent continent improvements rather than purely focused on a meeting Revenue targets. So as you can see the adjustment on those fronts are going to put some short-term pressure on revenues and there's this third direction that we're moving toward which involves holding series of promotional events in order to revive the long tail County ecosystem for these events. The company is is birth

In respect of Investments which is going to have some negative impact on Gross margins money. Why not 3000 some Grand plans his house dog. So Thursday, you mean you no harm or more to operable and you go back in the city the shark fact.

In terms of quantifying the short-term Financial impact among the different measures that we are deploying the ones with relatively bigger dog. What kind of impacts are already in the system. We we sort of put them in in early August timeframe and the bulk of the impact should be seen during the first several weeks after birth in which is to say that most likely the worst of the impact is already behind us in the guidance that we give we are modeling in a more than 10% off seemed quite sure the client in the library casting revenue on the court since the middle of August. We we have started seeing some initial size for investment in the company ecosystem in the revenue has also, you know, been showing some initial signs for recovery from the trust that we saw in early August timeframe. Yep.

Give us the confidence.

That as we moved into the for the library has been revenue on the core should see civilization with a gradual object to you. Hold on a Thursday. Excuse me.

With regards to the margins and also the profitability trend the subsidies that we're putting into the promotional events for Content are probably going to lie for some time until we feel that we reach a satisfactory level with the overall adjustment plan. This part is going to press the gross margin down by 2 to 3 percentage points. But if you look at the net income of the company in absolute dollar amount, I think you three is going to be the bottom as we move into queue for the net income that the company is going to see Improvement as the overall Top Line continues to improve. Okay, hold on Tuesday through Thursday. We moved to the liver you got a machine is in case you got Pizza Pub.

So it goes in children at home. I'll see the moon more high-wage. If we try to think about the overall Revenue at the company level over a medium toward longer-term Horizon. Here are some thoughts Tampa is the second growth engine company is clearly gaining traction now and the vast business on the core has also been growing at a pretty solid pace and because of the strength coming from these two parts, we can see that even even during two or three where the bulk of where the worst of the short-term impact from the structural reform is going to fall off.

Into the overall Revenue have a company level is still able to maintain a a pretty stable sort of state with only a with only a slight downtick from the prior quarter. So I'm into next year at this point. We're still seeing pretty good growth opportunities around that and especially around Pam pan. And for the Libor casting revenue on the core off as we move out of the transition. The revenue is also going to start improving. So we do expect the overall Top Line of the company to perform much better texture versus two years twenty. I think that the second question is 4, okay, so thing user is over to resume growth and like I said up until end of August, it has gone back to 4.1 million with A continuous upward Trend, but there's one thing that I like to call out here. We're currently testing wage.

Yeah differentiated price.

Pricing strategy for the membership business to maximize the revenues according to the testing results. This could slow down the growth of the number of subscribers off in Q3 due to the higher average pricing of the bum packaging for the live broadcasting business are focused for now is on user experience. This would include using content and recommendation engine as well as a better integrating live broadcasting into the overall act revenue is not top I work long run rate wise. We ideally we would like to keep within 5 million R&B Crossing per day during Q4. Now that the traffic is coming down that I want the rest of the year to be more about new about features than like broadcasting revenues.

That's where vast membership business has resumed growth in Q3 for a rest of the year. We're looking at several drivers for the bass line the overall you go. That's number one. Number two, we will be launching a new s VIP package towards end of Q3 the one I just mentioned which which is supposed to be a driver of the membership business according to the lab results number is 3 currently all we also have a few other new features that were testing which could come out either this year or some of them are subscription-based and some might be the card features value-added Services based on the court dating experience is crucial to experience something so violence will continue to be an extremely important piece in our Revenue mix

Thank you ready for now?

Your next question comes from the line of panel of th Capital, please ask your question is how long is it going to take? Let me see if she's here. She's a young girl. I talked to him last week sometime Thursday. So so I solve the ecosystem adjustment operation wise there can be a lot of trial-and-error process dead.

So what's are some kind of Matrix back to management are used to Major the outcome or effectiveness of the ecosystem at adjustments and wage? That's the first question the second question as last June in time ten starting to take off. So in the future, what is your Revenue? Mr. Is going to look like so how the the the the broadcasting and subscription going going to be in terms of proportion in the example you can position. Thank you ma'am, So you don't do just turned off.

Both what what are you what the table?

But you simply but I mean, I don't know what that mean. Could you do it for you? Put off some kind of tax money? Yeah. Okay. So both took some type of guy, you know being phased only see like birth sometimes.

Let's see the adjustment measures that we are currently implementing are going into several key areas in the area of reduce the concentration here. We will be looking at the revenue revenue contribution from the super top of the tournament users as well as some of them top of the touring and performers and we will of course also be looking at the number of paying users of the light broadcasting business Encore in terms of concrete proof meant, you know here we'll be looking at the number of the in the in the in the ligh broadcasting channels and their respective viewing time. Also the number of active broadcasters on daily basis and their respective broadcasting times for some of the deeper level product adjustments. We're going to be looking at different gauging factors dead.

At different stages. I think this is an area where we can probably further the discussion after the call. When we have more time other than the quantitative measures some of them more qualitative gauging factors are also extremely important. It's important for us to make sure that we are on the right track and move toward the right direction with the adjustment plan and these factors include whether it's whether it's fun to stay in the library passing channels cross daily events, and other form of competition events are intensive and compelling to watch the overall experience the consumers how do they feel and the overall experience of the broadcasters and agencies? How do they feel whether you know, they can build up a reasonable level of Revenue and profits all of these are encouraging.

That we're going to be looking at the other thing that I like to point out here is that the changes to the account inconsistent is not going to happen or overnight. It reflects the commitment and patience from the management also the focus on long-term ISM and you know, the the changes will happen over a progressive basis. We're hoping that we could use six months period of time to drive gradual changes to these, you know, the above-mentioned quantitative and qualitative measures around the country in court system and the second question. So total are too wise I think Tom will be similar to mobile and it could even be higher the mobile over time given given the rising consumption power of the new generation.

but

In terms of Revenue mix I think it will be different because sometimes the user is are much more focused on the coordinating experience. So, I believe that ultimately device will not very likely be a higher percentage of the total revenue than like broadcasting. Thank you.

Thank you quite clear.

Sorry, 10 operator given time. We're ready to take one last question. And and then please come back to me for closing. Thank you.

Your last question comes from the line of a legion of Bank of America. Please ask your question.

Oh, hi. Glad he's home page him. Can't find you a woman here. How are you going to be taking my question on the conversation of the Dayton area. Do you say can you give us an update real compared to the landscape here and secondly on the bottom line of 10:00 10:00 and the change of our guidance in yep.

Without breaking even I mean that year thank you. So in terms of competitors, we've never been to focus on competition and Thursday. We don't really feel any, you know strong or direct competition that we

Should be worried about I think that in terms of you know, connecting young singles that could potentially have remember the connection to meet offline. We are by far the market leader currently. So that's for question. Number one and in terms of question number 2 months in Q3. We're going to spend a bit more to go the user days because usually the summer holiday time presents a good opportunity for marketing wage income could be pretty flattish versus Q2 moving into Q4 Revenue will continue to grow meaningfully from both off and live stream. So even if we continue to spend heavily on marketing, we're still likely to see the break-even point by the end of the year, but that's not a must happen for us dead.

The strong top-line growth should continue into next year.

Is that 2021 will most likely be a profit-making different on unless we use a huge investment opportunities that we have to pursue at the expense of profitability wage which were not seeing at this point. Just why are you taking so long? How long would it take to do me in a moment of time do you don't use birth?

Thank you. Okay, so see several points to the first question regarding the competition. I think any sort of competition within the pod bay social space. Well, ultimately boil down to one question and that single most important question is who can build the right product to help the users better discover new relationships and life meaningful interactions that front more most team has over nine years experience and also has around six years of experience and during a multiple years time. We've seen user behavioral changes and we've gone through, you know, multiple rounds of direct and indirect competitions some of the computer

Came from more focused players in the open social space and some of the competition's came from, you know, ubiquitous application trying a much bigger ubiquitous application trying to expand into our territory, but I'm happy to see that after all these years and all these changes more is still today. Mama is sponge an employer in the respect respected territory that we are in that speaks to the capabilities of most team and also panton's team in the open social space. We're very calm at this is D area where where we will continue to be leading down the path. And the other thing is that the company has built up a comprehensive system that also has a professional team to follow and analyze the competitive landscape on a regular basis. And this is to make sure that the company always that we always yep.

name Vigilant about what's coming up around the corner and you know also this is

Also to make sure that the company stays at a leading position in the territory that we are in so I think this is an area where investors do not need to be to confirm that that concludes the conference call today. Thanks for joining a conference call. We'll see you next quarter operator ready to go to a club ladies and gentlemen that concludes our conference and thank you for participating you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to second quarter 2020 earnings conference call at this time. All participants are in a listen-only mode after the management prepared remarks. There will be a question-and-answer session at which time if you wish to ask a question, you may press star one on your telephone. Please note. This conference is being recorded today. I would like to have the conference over to your first Speaker. Today is Cathy Pence. Thank you, please go ahead ma'am.

Thank you operator. Hello everyone and thank you for joining us today for 1 more second quarter 2020 earnings conference call the company's results were released earlier today and are available on the company's I our website on the call today from Amora are missed Italian co-founder chairman and chief executive officer. Mr. Wang Lee president and Chief Operating Officer of Mystic. Mr. Wang founder and chief executive officer of Thompson and Mister Johnson from Chief Financial Officer. They were all they were discussed the company's business operations and highlight month as well as the financial and guidance. They were 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 provisions of the private Securities litigation Reform Act of 1996. Such statements are based on Management's current expectations and current market and operating conditions and relate to the events that involve known or unknown risks and uncertainties and other factors 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 these and other risks of your needs and factors is included in the company's filings with the US Securities and Exchange Commission. A company does not undertake any obligation to update any forward-looking statement as a result of new information future events, or otherwise except as required under law. I will now pass the call over to mister Tom. I will translate for him is dead.

cancel

Well, he didn't he thought something.

Don't condone one more times than you do.

So I wasn't quite so long.

Good morning, and good evening everyone. Thank you for joining our conference call today was a busy quarter for us. Although the economic impact from the pandemic still lingered. I have two user engagement improving at a steady Pace normal and sometimes.

With things gradually coming back to normal on the traffic side starting from our teams have stepped up the efforts to drive toward our strategic goals. Now, let me quickly walk you through the key operating a financial results for the quarter. We are also going to give you an update on the company's priorities for the year and how we are going to approach them in the coming few quarters.

Palm Beach Gardens she since I'm back

I was in hope you get either the movie.

Yeah, you don't need a cheap.

Would you do with a church? You think I should?

Teaching job. I mean Tony beets in Saint Patrick's Day. She she's such a twat.

Firstly a brief overview of the financial performance for the second quarter 2020 total revenue was 3.87 billion Renminbi down 7% younger, but up 6% quarter-over-quarter adjusted operating income for the quarter was 1.04 billion women be representing a 27% profit margin is dead, but just said operating income for the quarter mile was 1.1 billion Renminbi were a 33% profit margin on hand side. I'm glad to see that are testing Broadcasting Service started gaining Traction in the second quarter. Although the membership service was struck hard by The Cove it when the associated week dating activity total revenues at Hampton still grew up 2% year-over-year and 35% sequentially to $570 million for the second quarter driven by the rapidly ramping up live broadcasting Revenue wage.

I improved contacts adjusted net loss also narrow down to 77.79 million for the second quarter month. So she seeing y'all suck.

How do you do? I mean you see somebody off choose what you want.

No deeper dive into other aspects of the quarter first operating metrics as the Kobe impacts began to tell out in the second quarter and the locksmith substantially relaxed within China the social Center and also recovered gradually the number of enemy you grew 3.5 million during the quarter to 111.5 million month in June total time spent also saw a substantial improvement from the previous quarter as the use the use of the platform recovered. The number of paying users are more more also offer a $300,000 and an addition from the first quarter to eight point nine million in the second quarter of 2020.

Sorry, I help you.

You said y'all you look here in the moment you're supposed to do you do to chat app pens and so each of the English of conduct quiz page turned off so much attention.

I need to transfer my experience rapid user growth during the two weeks following the Chinese New Year holiday. However, the gross was disrupted by The Continuous reading of the coronavirus and the waning dating sentiment as a result of that unlike more more. We are a big variety of alternative social entertainment experiences Thursday available time time was almost purely about converting online matches to offline dating activities before true to their for compared to normal Santa was struck Harder by The Cove it and the recovery of that happened later than it did on the normal core.

I already met the lockdown in most parts of China had been lifted and therefore we were able to see a recovering Trend in the number of active users on sometimes. We are very optimistic about the user growth outlook on 10th and post code as the team continue to improve its user acquisition efforts. And in which the product experience on the platform. These are also the two most important priorities for each team in the coming three quarters.

True so true. Yeah. Sure. She'll drink do you open this is you you say you also you do.

I'm not paying users for the second quarter total total of three point nine million three hundred K decrease from the previous quarter on top of the decrease in D A. You covet also heard the same motivation to pay for the subscription Services leading toward a decrease in a paying racial, which is also taking more time to recover than the overall you such an effect has caused the pain recovery to temporarily lag behind the resumption of the growth in Q2 and Q3. The pain users have already gone back to the growth track while you will have more choice for you a bit later.

Hold on.

Friends who you twenty thirty years to focus fully on the Strategic priorities for the long-term. Now, let me take you through the updates on several important projects that will stay on Management's agenda for the coming few months. What time are you coming home of 10 does have been to yet?

I'm going to late.

Trinity comes out and things, you know to if I'm in those sorts of how soon please

okay, you said you like on Thursday?

So it's 10:30. I know.

uh-huh talking

So as soon as you let me kind of thing here with us or accept walk-ins and support somebody else.

One more chance to you told me that she needs that what's the name?

First and foremost improve the product and operations are moment in time in order to better serve the user social demands. One of the critical steps we need to take on that front is to bring the product experiences on sometimes we have always believed that in order to drive better user engagement improve long-term retention companies to supplement the course with a manager experience with extra features and services as Alternatives late last year Santa introduced The Flash at experience which was the first step toward that goal.

It was preventing if you want the flash had played a positive role in driving user engagement as well as my monetization of that success with significantly accelerate the pace of product Innovation on time the second quarter on April 7th. We fully roll out the nearby post feature on time, which is an important move in improving a community experienced users also extends the wrong way of exploring other product Innovations down the path in mid April. We started accelerating the pace in testing another important Thursday the library Custom Service on time until now Within

Four months into the Pilot's face the results obviously have exceeded our original expectations. It proves our earlier belief that live streaming cannot only be a powerful Revenue driver wage. Also coupling in the coordinating experiencing a very positive positive way. Although at this point, we're still at the testing mode and the team is is focused on improving the product and life experience instead of driving manipulation. It is already becoming clear that time time as the second growth engine for the company is beginning to gain traction e w

Besides the nearby post and the library casting service campaign is also making impressive progress has multiple other fronts long as you will have more details for you later wage.

So you should be well my child and teaching machine off. Do you say you can do a quick update on the core Momoa in the second quarter? We made several optimizations to the basic social experiences on the platform. For example, we upgraded the the onboarding experience for the new users and resurrected users making it easier for them to build meaningful connections. We also adjusted our recommendation engine to push dormant relationships to some of our old users dead.

You order to reactivate the conversations these efforts aimed at?

Aimed at enhancing the user experience and improving the retention when the users came aboard are more from the long period of social distancing as a result in June. We saw a meaningful embankment in the retention ratio for the new users and resurrected user.

Each month, so he changed for me. Do you happen to meet you on Thursday? We also sold you don't do you say shove? It should be censorship house tension that you think that you just tell me sir. Let me shoot you dead.

This is this is Nikita.

Does the older guys with the BOGO offer you $2,000 a month, you know?

I can't remove the dead South.

Lastly I'd like to spend a few minutes discussing an important Endeavor that we have in undertaking lately as many of you know, since the beginning of the year the economic impact from the covid-19 have been pressuring the light broadcasting revenues and more more more.

A considerable number of our high paying users are private business owners food Financial conditions have been adversely affected by the pandemic. We believe that the macro factors make sure to be a headwind for the top spending during the past couple of years, especially in the back half of 2019 or more Coors Light broadcasting business had become more reliant on the back of the pyramid users as well as the top of the pyramid broadcasters.

View the current macro condition we believe it is safer to reduce the revenue concentration on the top and move the spending more towards the middle layers within the permit off as a matter of fact very last year. We already made some efforts to stimulate the middle cohort spending which generated some positive outcomes. However, long more me more fundamental product and operational changes are needed in order to reduce the dependence on the top in a more meaningful way and at the same time improve the Longfield company for system off. The adjustments will cover a wide range of areas within the library casting court system including traffic directions strategies product design and content operations as well as just the way we manage the competition events and the agencies our president of the old one. We will discuss the adjustment plan in more details later as the plan involves the changes on multiple products and operation.

It's short-term Rising me create some pressure on one more quarter advertising revenue and gross margins, especially in Q3. We believe the pressure should be

As the world from Canton and the solid performance from almost that will keep the revenue relat relatively stable during the transition period and we expect a live broadcasting revenue on the core to see gradual Improvement in Q4 more importantly. I'm also a firm believer that when we walk out of this transition. I'm going to see a revenue structure that is more resilient in the current environment as well as a vibrant and lots of vibrant and long-tailed driven content ecosystem that supports log for 2021 & Beyond.

Thank you for creating your she beautiful job since you're free to go.

Who's the courtroom Lisa Finkle fine? Yeah, just go to your home.

Buffy I'm pleased to announce that today our board approved a three hundred million dollars share repurchase plants. This program will allow the company to capitalize on attractive Chicago to enhance shareholder value similar to the dividend payments that we've announced in the past this share buyback plan demonstrate our long-term commitment to maximizing shareholder values as well as Management's confidence in the future of the business. Thank you for trusting more team and here is one going to review the business updates one of them, please.

Now, let me take you through the crevasses. We've made across our key business line. I want to slip off so you're single. I thought you just

Trophy online broadcasting total revenue from advertising business for the second quarter 2020 was 2.6 billion MB down 16% from the same period last year but not 12% from the previous quarter. The sequential increase was largely driven by the rapid growth from Pakistan live streaming service and to a lesser degree, the gradual Improvement in morale course library has been business as many of you know, ten that has been accelerated accelerating the testing of the sly Broadcasting Service since mid-april. The testing results have been very encouraging while you were share more details in his remarks later. So I will be mainly focused on the June 22nd June.

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Do what is it that you doing the oil pump off?

One more question. I broadcasting revenues total of 2.41 billion Renminbi for the second quarter down 22% from the same period last year but up 4% from a quarter.

During the second quarter as the traffic gradually recovered we held a couple of events trying to test the water for the consumer sentiment, especially that among the top Spenders. Although we did see some incremental Revenue contribution from those events. We could clearly see that the overall spending sentiment from the top remained week.

According to our survey as well as anecdotal conversations from some of our high paying users with significant portion of them own business in manufacturing and commerce Industries and coastal regions such a long weekend. It may take some time for these business to fully turn around due to the situation of the pandemic globalize you could you do you what do you think? Should I have you saw Em? I'm doing good. So well, sometimes he told me that so yep.

You go looking for some people who don't know. What are the towing package?

Well, it is hard to predict how the overall macroclimate they may develop in the coming few quarters as the platform operator. We did take considerable effort during the past couple of months to study. What are some of the changes that we can affect within our own content ecosystem so that the library has been business can continue to grow healthily in the new external environment. Now, let me share some of the findings from our studies. First of all like Tanya said,

What were the past couple of years?

Our labor casting business has become heavier on the top both in terms of Revenue contribution. And in terms of traffic on both supply-side and demand-side such a situation was due to a number of different reasons, including the evolution of our traffic allocation system the way we set kpis in the agency incentive program as well as certain interactive features operational efforts that we wrote out to boost up spending as a result middle and entry-level performers are getting insufficient traffic support, which further cost accountant Quality Inn long time to descend having a vibrant Long Hill Country ecosystem has been a key competitive competitive advantage of normal as a social platform. We need this advantage to them and not weekend, especially in a challenging macro environment.

She said you paid off.

I tried identifying these issues. We have put together a plan to address them key things under the client include addressing the traffic allocation strategy to redirect them from large channels two smaller ones investing in new features and operational events to beef up the content experience in the long tail showrooms and adjusting the kpi system for agencies as well a Reinventing the competition event with the purpose to focus Less on revenue and more on content and supporting new talents the plan also involves adjustments to certain in Iraq and related operational policies that can be a strong stimulator for top spending but long-term wise may not be beneficial for the Continental System.

The address and upon could put some temporary pressure on both revenue and gross margin formal course live broadcasting business. However, the robust growth of the vast business and the strong momentum from Taunton presents a good opportunity for us to carry out the structural reform because these business lines will keep the overall revenue of the company stable during the transition period is almost here told you by Colbie think this is only the only news I am five weeks into the program the company called system is now beginning to see some initial signs for improvements Revenue. After experiencing strong volatility is in early. August also has a job

Plz fast give us the optimism that the worst of the impact should have been.

And that live broadcasting revenue for the core. Should she graduate Improvement as the company ecosystem continues to improve life Santa Claus? No, no, please do not forget who don't love to finally don't know.

Now it's coming fast revenues from from value-added service which one point two billion women be up 27% year-over-year again. I'll be focusing on a business too long a bit later revenue from that on the extent of basis which 879 million Renminbi for the second quarter of 2020 up 32% year on a sequential basis that's revenues on the court will temper test driven by the recovery of traffic as well as the growth momentum from some of the keep a experiences within that wage arguable usurping should not here since you don't not sure.

During the second quarter the audio and video social entertaining experiences continue to generate robot squad for vets The Continuous momentum from the from the category was driven by a lack of product and operational ideas from the team. For example, we introduced a few new mini games into the chat room experience such as karaoke show and Friends trade. We also revamped the game in the real world experience which successfully successfully put this relatively order experience back onto the growth tracks. So she must don't go home you are you having done with this is she dead?

Youngsters with you soon. Give me a million.

No it in the pocket of new experiences hers a stand-alone audio dating application and Matchmaker a video dating experience within the corps Memorial continue to progress well in a second quarter, the retention ratios were both products improved steadily, which is the foundation of user growth and also the most important targets for these early-stage Endeavors at the same time. The team is also actively exploring different monetization opportunities Within These New Generation Innovations. We believe the revenue contributions from the new bucket will continue to improve and become a meal for driver next year birth birth.

That's all other business.

Business like mobile marketing Revenue was 37.96 Million Renminbi down from 76.21 million women be the same. The decrease was a reflection of both macro headwinds and our strategy to underweight the line in terms of resource allocation. This year jointly operated game business continued to Trend down and we're likely fluctuate around the current level for the coming few quarters, you know, someone who came how do you know who she said that's the business review of the corps Memorial now, let me hand over to mr. Wang before we have times the product and Business Development. Mr. Wang, please Banks. So let me briefly with the contents operational and business development in the past quarter in our next step plan.

First on YouTube trends and radio related metrics tons symmetric domestic momentum after Chinese New Year in mid-February. The gross was disrupted by the escalation of the covid-19 outbreak and you started declining rapidly by early May the epidemic within China a largely under control and the social distancing measures were largely relaxed after the May holiday. We were able to see dating sentiments and the user engagement gradually coming back by the end of June something domestic you had rebounded by around 10% from the bottom seen in early April.

No briefly on user Trends outside China since the beginning of 2020. We've been pulling back the resources from developing countries such as England and India and beefing up efforts in developed regions instead as I mentioned before our overseas strategy is primarily primarily geared toward revenue and profit. Although developing countries can provide a large user base the our pool we can get under the subscription model from those regions is to low-wage the profit in a meaningful way.

Walden the developed markets where the our pool is much higher. We see greater opportunities to obtain better RI of a much smaller do surveys as a result of the Strategic they'll receive yeah, you turn it down in the first half of 2020 but revenues from or overseas markets continue to grow at a healthy Pace despite the headwinds from the covid-19 pendek.

Within our overseas development plan. We still see huge gross opportunities in the developing countries. However, based on our understanding of user behavior in Psychology. We believe that as compared scripture model pay-per-use value about the other services should make much better sense in terms of our eyes development as well P Market. Our strategy here is to go back into these markets one. Once we establish a solid down subscription Revenue model in China.

No alternative.

Paying users paying users for second-quarter on compound total 3.9 million down from 4.2 Million last quarter as counsel mentioned earlier covid-19 only hurt you but also as adverts adversely affected the propensity to pay from active users as a result off during the social distancing. The Ping ratio saw a meaningful decrease and the recovery of it's also like the recovery of the overall.

Costing a temporary lab between the resumption of paying user growth and the rebound India you we entered into Q3 the lagging effect began to tell out and the Ping use account hack him up. As a matter of fact after August thirty. First number of paying users have bounced back to 4.1 million with A continuous Palm upward Trend now briefly on revenues.

Total revenues for a second quarter of reach 517.2 million up 82% year-on-year and 35% quarter-on-quarter driven a strong momentum from the light broadcasting business which significantly lifted are people this subscription business shows a downward Trend in the second quarter largely due to the cold with impact off. So lesser extent in production of live streaming business also had some negative impact on the description business, which was within our expectations based on AP testing results with a nipple istic effect is about ten to fifteen percent of the subscription Revenue, which is quite manageable with the continuous recovery of the we expect tons about business office to resume growth in Q3.

So let me give you an update on the progress is that we made on a number of other strategic runs during Q2. First of all enriching the product experiences in the second quarter. We significant accelerated effort in building features and services beyond the course wiping experience. The goal is to improve the long-term retention on compound which is a critical factor in the user growth and equation month in April with fully launched a nearby post features. It allows some time users to discover new relationships and build interaction or accountants rather than purely based on the profile information of his wife's life related operational effort. We introduced the hashtag section within the post so that the user is would have interesting and meaningful topics to talk about further helps tunnels users more effectively connect with each other.

In April, we started Fast Track in other important projects the testing of live streaming service on sometimes up until now the light broadcasting Services already covered millions of views on the platform the data that we have seen so far has proven to important things that provide guiding value on our future path of development. Number one if happened if if handled project live broadcasting potentially other peripherals experiences can be complimentary to the core dating experience, especially for users to find it less detective to connect and interact on the swipe at matchmaking this and number two. Tom Tom has a great deal of growth potential dying in live bracket broadcasting as well as in other forms of paper use value-added services.

Looking into a rest of the the year our primary focus for live broadcasting service.

Is to improve the product experience a lot of what we do will revolve around improving the recommendation engine beefing up the content experience and testing ways to better integrate live streaming service into the application that you can serve more times than users in need. We will also like to carefully manage the pace Revenue growth to avoid any unexpected adverse impact on a dating ecosystem as we push push the boundaries on the product side. We also believe that what defines sometimes is our for Mission which is to help young people discover new relationships and building actions were romantic purpose the course wife and match experience continues to play the most important role in competition definition. Therefore while diversifying into other products. We also dedicate significant resource in making the quote dating experience better. Currently, we have several key projects in the testing phase such as revamping the profile page.

Waiting and has personal description and contents as well as furthering the real person verification system from photo verification ID card verification, all of these projects same as delivering a better dating experience two thousand users, you know more secure environments. This is still the single most important values as we would like to deliver to our users. This is also the thing most important goal. We need to accomplish in order to keep expanding our user base. Everything else will be secondary to that mission under that same principle on the month ization side. We are also working hard develop new bus service features based on the coding experience. Some of these are new features and some of these involved vcafe repackaging and repricing the existing features off. The lab results have come back quite positive. So we are very optimistic about the growth opportunities for growth in the second half and Beyond.

Those are the three things that I like to cover for today. Now. Let me pass the call over to mister Johnson John for financial review copy. Thanks. Hi everyone. Thank you for calling over a conference call today. Let me briefly take you through the Financial reviews.

Total revenue for the second quarter 2020 was 3.87 billion MB down 7% year-on-year up 8% quarter-over-quarter. I'm not getting that income attributable tomorrow more with 669.8 million R&B compared to 1.24 billion month from the same. 2019 or a 46% decrease year-over-year during the second quarter the company repatriated 2.5 billion R&B from the goofy legal entity in China and incurred 220 million R&B in income tax expenses, excluding the special item. Non-gaap. Net income for the quarter would have been 889.8 million R&B.

Let me jump directly into review of course of the expenses items as Revenue line items covered comprehensively by warranty and Winery or less cost of revenue for the second quarter of 2020 with 2.01 billion Renminbi compared to 2.04 billion for the same period last year.

Cost of Revenue as a percentage of total revenue was 52% increased from 49%

In Q2 2019 non-gaap gross profit margin for Q2 2020 was down by three percentage points year-on-year. The decrease was attributed to the following four factors. Number one Higher payout ratio from live broadcasting business are more wage higher Revenue contribution from agency representative representative broadcasters number to higher payout ratios from vast business.

Due to the strong momentum coming from the audio and video social entertainment business.

Bigger part of which involved third-party professional hosts number three lower gross margin from 10:10 as its life broadcasting business is becoming sizable during the quarter.

And lastly certain things Nature Calls items such as head counts and depreciation of fixed assets related impacted the gross margin negatively off as a total revenue declined and those items represented a higher percentage of total revenue.

Not get R&D expenses for the second quarter was 226.6 Million MB compared to two hundred four point eight million RAV4 the same quarter last year representing 5.9% and 4.9% of the total revenue respectively the increase in R&D expect what mainly due to the headcount increase we ended the quarter with 2362, totally employees of which 712 are form content the R&D personnel as a percentage of total employees for the group was 60% compared to 54% during a cute your last year.

non-gaap sales and marketing expenses for the second quarter was 590.7 Million MB war 15.3% of total revenue compared to

502.3 million MB or 12.1% of total revenue for the same period last year the year-over-year increase in sales rep getting expenses was mainly due to the higher marketing spending for ten times as well as marketing spending more more more new product initiatives.

On a sequential basis the sales and marketing expenses decreased by 8% because of the marketing spending in connection with the most year and live broadcasting event, which happened in the early January this year.

Apna expenses was 91.9 million MB for the second quarter of 2020 compared to 119,000 point four million R&B for the same quarter last year representing 2.4% and 2.9% of total net revenue respectively get operating income was 1.04 billion R&B a decrease of 28% from 4 to 2019 representing 26.8% Non-gaap operating margin for the quarter down eight percentage points from the same period last year

I'll briefly on income taxes the company repatriated 2.2 billion from our goofy in China to our offshore entity in Q2 in order to replenish our US dollar funding.

In accordance with the respective taxation laws of China the company paid 10% or 220 million R&B withholding tax to Chinese tax authorities. This payment was recorded as income tax expenses for the company during the second quarter 2020.

Excluding the withholding tax payment. Our non-gaap effective tax rate would have been around 21% include 2020 now turning to the balance sheet and cash flow items as of June 30th, 2021 most Cash Cash equivalents short-term deposits and long-term deposits totaled 15.38 billion Min be compared to

15.23 billion b as of December 31st 2019 in the company paid approximately an equivalent of 1.1 billion month special cash dividend to moment to shareholders net cash provided by operating activities in the second quarter was

8

7.3 million or maybe

Lastly on the business all look we estimated our third-quarter Revenue to come in the range from 3.7 billion between between three point eight billion. It may be representing a decrease of 16.9% to 14 6% a 14.6% year-on-year and 83 of 4.3% to 1.8% quarter-over-quarter. Please be reminded for that this forecast represents the company's current and preliminary review page 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 Kathy for you know, just a quick reminder before we take the questions for those who can add those who can speak pig.

Please please ask you a question in Chinese first followed by English translation by yourself. And also please leave me the number of questions to maximum to so that everybody else opportunity to ask questions operator ready for accounting, please ladies and Gentlemen, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hashtag.

Your first question comes from the line of farmers chunk of your question. I'm not going to ask you a couple of pieces and honey, You said the last part for a long solo the trend now, that's my first question and my second question is about the second half outlook on life, especially along the key metrics such as a paying Deuces and revenue on top of that if there's any separate color for live streaming and the Box line down,

Thank you. Let me take take a couple of minutes to translate the first question. I think Thomas wanted to understand the game, you know how exactly the overall adjustment plan is going to impact the revenue in the second half of the year. And also, you know, I would appreciate management to provide some quantitative guidance regarding the specific impact from from the adjustments. And also what management management view about the long-term Revenue Transformer course library has been business as well as the overall Top Line at the company level.

Not too long. We he pulls on shaker hood off to them before Minnesota don't quickly. So I'm gonna be hurt as we mentioned in the as we mentioned in the prepared remarks the adjustment plan that we are currently implementing is wage.

Many different areas on the product side and on the operational side some of the measures when initially implemented are going to have some negative impact on off of the top users and some of the top broadcasters as well. In addition. We are also making adjustments to the kpi system of the agencies as well as restructuring the way we build the competition events and the principal here is to gear these systems more toward constant constant improvements rather than purely focused on Monday meeting Revenue targets. So as you can see the adjustments on those fronts are going to put some short-term pressure on revenues and there's this third direction that we're moving toward which involves holding series of promotional events in order to revive the long tail County ecosystem for these events. The company is going to suck.

Respected the Investments which is going to have some negative impact on growth margins money. Why not? Mm some Grand plans is how long they sort of plans you offer. You mean you no harm or more to offer support and you go back and just as long as soon as I get some something of booty actually he got children.

In terms of quantifying the short-term Financial impact among the different measures that we are deploying the ones with relatively bigger shortcoming packs are already in the system. We we sort of put them in in early August timeframe and the bulk of the impact should be seen during the first several weeks after birth in which is to say that most likely the worst of the impact is already behind us in the guidance that we give we are modeling in a more than 10% off seemed quite sure the crying in the library casting revenue on the court since the middle of August. We we have started seeing some initial signs for investment in the company ecosystem in the revenue has also, you know, been showing some initial signs for recovery from the trust that we saw in early August timeframe dead.

give us the

That as we moved from before the library cutting revenue on the core should see civilization with a gradual object to lose faith faith.

With regards to the margins and also the profitability trend the subsidies that we are putting into the promotional events for Content are probably going to laugh some time until we feel that we reach a satisfactory level with the overall adjustment plan. This part is going to press the gross margin down by 2 to 3 percentage points. But if you look at the net income of the company in absolute dollar amount, I think you three is going to be the bottom as we move into queue for the net income that the company is going to see Improvement as the overall Top Line continues to improve. Okay. Hold on Tuesdays through Thursdays. We close to the living like you got a machine is in case you got Pizza Pub.

So it goes in children?