Hello Group Inc. Announces Financial Results for Fiscal Year 2021

Hello Group Inc. (NASDAQ: MOMO) (“Hello Group” or the “Company”), a leading mobile social and entertainment platform in China, today announced its unaudited financial results for the fourth quarter and the full year ended December 31, 2021.

Fourth Quarter of 2021 Highlights

• Net revenues decreased by 3.2% year over year to RMB3,674.2 million (US$576.6 million*) in the fourth quarter of 2021.
• Net loss attributable to Hello Group Inc. was RMB4,242.7 million (US$665.8 million) in the fourth quarter of 2021, compared to a net income of RMB651.5 million in the same period of 2020. Due to the fact that the Group’s fair market value as indicated by its market capitalization was significantly below its net book value of equity, the Group determined that a triggering event had occurred for impairment. The Group conducted a detailed impairment analysis and recorded RMB4,397.0 million (US$690.0 million) as impairment loss, which represented the total value of all the goodwill and intangible assets with the exception of its operational licenses and permits on the consolidated statement of operations for the year ended December 31, 2021.
• Non-GAAP net income attributable to Hello Group Inc. (note 1) decreased to RMB280.9 million (US$44.1 million) in the fourth quarter of 2021, from RMB836.4 million in the same period of 2020. Non-GAAP net income attributable to Hello Group Inc. included an accrual of withholding income tax of RMB207.4 million (US$32.5 million) on undistributed earnings generated in 2021 by our wholly-foreign owned enterprise (“WFOE”), due to our plan to remit WFOE’s earnings to its offshore parent company in the foreseeable future to fund its demand on US dollar in business operations, payments of dividends, potential investments, etc.. Without this item, non-GAAP net income attributable to Hello Group Inc. would have been RMB488.3 million (US$76.6 million) in the fourth quarter of 2021.
• Diluted net loss per American Depositary Share (“ADS”) was RMB21.50 (US$3.37) in the fourth quarter of 2021, compared to a diluted net income per ADS of RMB2.98 in the same period of 2020.
• Non-GAAP diluted net income per ADS (note 1) was RMB1.38 (US$0.22) in the fourth quarter of 2021, compared to RMB3.80 in the same period of 2020.
• Monthly Active Users (“MAU”) on Momo application were 114.1 million in December 2021, compared to 113.8 million in December 2020. MAU on Tantan application were 27.0 million in December 2021.
• Total paying users of live video service and value-added service, without double counting the overlap and including 2.5 million paying users of Tantan Limited (“Tantan”), were 11.4 million for the fourth quarter of 2021, compared to 12.8 million for the fourth quarter of 2020, which included 3.8 million paying users of Tantan.

Full Year 2021 Highlights

• Net revenues decreased 3.0% year over year to RMB14,575.7 million (US$2,287.2 million) for the full year of 2021.
• Net loss attributable to Hello Group Inc. was RMB2,913.7 million (US$457.2 million) for the full year of 2021, compared to a net income of RMB2,103.5 million during the same period of 2020.
• Non-GAAP net income attributable to Hello Group Inc. (note 1) was RMB2,037.1 million (US$319.7 million) for the full year of 2021, compared with RMB2,896.2 million during the same period of 2020.
• Diluted net loss per ADS was RMB14.40 (US$2.26) for the full year of 2021, compared to a diluted net income per ADS of RMB9.65 during the same period of 2020.
• Non-GAAP diluted net income per ADS (note 1) was RMB9.56 (US$1.50) for the full year of 2021, compared with RMB13.16 during the same period of 2020.

“2021 was a busy year for us. Despite a variety of external challenges, our team was able to methodically execute our strategic priorities and delivered solid results. I am confident that we’ll continue to navigate through the challenges ahead and capitalize on the growth opportunities down the road.” commented Li Wang, CEO of Hello Group.

Fourth Quarter of 2021 Financial Results

Net revenues

Total net revenues were RMB3,674.2 million (US$576.6 million) in the fourth quarter of 2021, a decrease of 3.2% from RMB3,795.2 million in the fourth quarter of 2020.

Live video service revenues were RMB2,148.8 million (US$337.2 million) in the fourth quarter of 2021, a decrease of 7.7% from RMB2,327.9 million during the same period of 2020. The decrease was primarily attributable to the decrease in Tantan’s live streaming revenues due to the shift of our strategic focus. The live steaming revenues on Momo application increased 1% year over year in the fourth quarter of 2021.

Value-added service revenues mainly include virtual gift revenues and membership subscription revenues. Total value-added service revenues were RMB1,475.7 million (US$231.6 million) in the fourth quarter of 2021, an increase of 5.3% from RMB1,401.3 million during the same period of 2020. The year-over-year increase was primarily attributable to the continued growth of the virtual gift business on the Momo application driven by the introduction of innovative features and operational events in the audio and video social entertainment experiences, and the rapid growth in the revenues generated by new standalone apps. The increase was partially offset by the decrease in the value-added service revenues of Tantan, due to our strategy to lower the monetization level to improve user experience and retention.

Mobile marketing revenues were RMB25.4 million (US$4.0 million) in the fourth quarter of 2021, a decrease of 51.8% from RMB52.7 million during the same period of 2020. The decrease in mobile marketing revenues was due to our product adjustment to address new regulation requirement.

Mobile games revenues were RMB19.3 million (US$3.0 million) in the fourth quarter of 2021, an increase of 163.1% from RMB7.3 million in the fourth quarter of 2020.

Net revenues from the Momo segment increased from RMB3,051.3 million in the fourth quarter of 2020 to RMB3,235.6 million (US$507.7 million) in the fourth quarter of 2021, primarily due to the increase in net revenues from value-added service. Net revenues from the Tantan segment decreased from RMB740.5 million in the fourth quarter of 2020 to RMB437.2 million (US$68.6 million) in the fourth quarter of 2021, due to our strategy to lower the monetization level in order to improve user experience and retention.

Cost and expenses

Cost and expenses were RMB7,729.4 million (US$1,212.9 million) in the fourth quarter of 2021, an increase of 134.9% from RMB3,290.0 million in the fourth quarter of 2020. The increase was primarily attributable to: (a) an increase in impairment loss on goodwill and intangible assets amounting to RMB4,397.0 million (US$690.0 million); and (b) an increase in revenue sharing with broadcasters related to Momo’s core live video service, and virtual gift recipients for our virtual gift service. These increases were partially offset by a decrease in revenue sharing with broadcasters related to Tantan’s live video service, and a decrease in personnel related costs including share-based compensation expenses resulting from the decreased number of employees and the decreased fair value of the share options granted during the period.

Non-GAAP cost and expenses (note 1) were RMB3,205.8 million (US$503.1 million) in the fourth quarter of 2021, an increase of 3.6% from RMB3,095.9 million during the same period of 2020.

Other operating income

Other operating income was RMB38.6 million (US$6.1 million) in the fourth quarter of 2021, a decrease from RMB88.4 million during the fourth quarter of 2020. The other operating income mainly consisted of government incentives.

Income (loss) from operations

Loss from operations was RMB4,016.6 million (US$630.3 million) in the fourth quarter of 2021, compared to an income from operations of RMB593.6 million during the same period of 2020. Income from operations of the Momo segment was RMB549.3 million (US$86.2 million) in the fourth quarter of 2021, which decreased from RMB650.9 million in the fourth quarter of 2020. Loss from operations of the Tantan segment was RMB162.5 million (US$25.5 million) in the fourth quarter of 2021, compared to loss from operations of RMB53.1 million in the fourth quarter of 2020.

Non-GAAP income from operations (note 1) was RMB507.0 million (US$79.6 million) in the fourth quarter of 2021, compared to RMB787.7 million during the same period of 2020. Non-GAAP income from operations of the Momo segment was RMB658.4 million (US$103.3 million) in the fourth quarter of 2021, which decreased from RMB791.8 million in the fourth quarter of 2020. Non-GAAP loss from operations of the Tantan segment was RMB145.0 million (US$22.8 million) in the fourth quarter of 2021, compared to non-GAAP loss from operations of RMB2.3 million in the fourth quarter of 2020.

Income tax expenses

Income tax expenses were RMB296.5 million (US$46.5 million) in the fourth quarter of 2021, compared to RMB5.5 million in the fourth quarter of 2020. The increase was primarily due to the following reasons: (a) in the fourth quarter of 2021, we accrued withholding income tax of RMB207.4 million (US$32.5 million) on undistributed earnings generated in 2021 by our WFOE, because we plan to remit WFOE’s earnings to its offshore parent company in the foreseeable future to fund its demand on US dollar in business operations, payments of dividends, potential investments, etc.; (b) in the fourth quarter of 2020, we reversed the over-accrued income tax expenses of RMB113.4 million, due to the preferential tax rate adjustment from 12.5% to 10.0% for WFOE, resulting from the fact that the application of the Key Software Enterprise for the fiscal year of 2019 was approved in 2020.

Net income (loss)

Net loss was RMB4,244.0 million (US$666.0 million) in the fourth quarter of 2021, compared to a net income of RMB651.1 million during the same period of 2020. Net income from the Momo segment was RMB306.7 million (US$48.1 million) in the fourth quarter of 2021, which decreased from RMB705.8 million in the fourth quarter of 2020. Net loss from the Tantan segment was RMB147.3 million (US$23.1 million) in the fourth quarter of 2021, compared to net loss of RMB50.5 million in the fourth quarter of 2020.

Non-GAAP net income (note 1) was RMB279.6 million (US$43.9 million) in the fourth quarter of 2021, compared to RMB836.1 million during the same period of 2020. Non-GAAP net income from the Momo segment was RMB415.8 million (US$65.3 million) in the fourth quarter of 2021, which decreased from RMB846.7 million in the fourth quarter of 2020. Non-GAAP net loss of the Tantan segment was RMB129.9 million (US$20.4 million) in the fourth quarter of 2021, compared to non-GAAP net loss of RMB8.8 million in the fourth quarter of 2020.

Net income (loss) attributable to Hello Group Inc.

Net loss attributable to Hello Group Inc. was RMB4,242.7 million (US$665.8 million) in the fourth quarter of 2021, compared to a net income of RMB651.5 million during the same period of 2020.

Non-GAAP net income (note 1) attributable to Hello Group Inc. was RMB280.9 million (US$44.1 million) in the fourth quarter of 2021, compared to RMB836.4 million during the same period of 2020.

Net income (loss) per ADS

Diluted net loss per ADS was RMB21.50 (US$3.37) in the fourth quarter of 2021, compared to a diluted net income per ADS of RMB2.98 in the fourth quarter of 2020.

Non-GAAP diluted net income per ADS (note 1) was RMB1.38 (US$0.22) in the fourth quarter of 2021, compared to RMB3.80 in the fourth quarter of 2020.

Cash and cash flow

As of December 31, 2021, the Company’s cash, cash equivalents, short-term deposits, long-term deposits and long-term restricted cash totaled RMB15,707.0 million (US$2,464.8 million), compared to RMB16,482.3 million as of December 31, 2020. Net cash provided by operating activities in the fourth quarter of 2021 was RMB665.5 million (US$104.4 million), compared to RMB1,039.1 million in the fourth quarter of 2020.

Full Year 2021 Financial Results

Net revenues for the full year of 2021 were RMB14,575.7 million (US$2,287.2 million), a decrease of 3.0% from RMB15,024.2 million in the same period of 2020.

Net loss attributable to Hello Group Inc. was RMB2,913.7 million (US$457.2 million) for the full year of 2021, compared to a net income of RMB2,103.5 million during the same period of 2020.

Non-GAAP net income attributable to Hello Group Inc. (note 1) was RMB2,037.1 million (US$319.7 million) for the full year of 2021, compared to RMB2,896.2 million during the same period of 2020.

Diluted net loss per ADS was RMB14.40 (US$2.26) during the full year of 2021, compared to a diluted net income per ADS of RMB9.65 in the same period of 2020.

Non-GAAP diluted net income per ADS (note 1) was RMB9.56 (US$1.50) during the full year of 2021, compared to RMB13.16 in the same period of 2020.

Net cash provided by operating activities was RMB1,559.2 million (US$244.7 million) during the full year of 2021, compared to RMB3,080.9 million in the same period of 2020.

Recent Development

Declaration of a special cash dividend

Hello Group’s board of directors has declared a special cash dividend in the amount of US$0.64 per ADS, or US$0.32 per ordinary share. The cash dividend will be paid on April 29, 2022 to shareholders of record at the close of business on April 13, 2022. The ex-dividend date will be April 12, 2022. The aggregate amount of cash dividends to be paid is approximately US$127 million, which will be funded by surplus cash on the Company’s balance sheet.

CFO Transition

The Company today announced that Jonathon Zhang, Chief Financial Officer, will retire effective June 30, 2022. Cathy Hui Peng, Senior Vice President of corporate finance, will assume the role of chief financial officer following Mr. Zhang’s retirement and Mr. Zhang will remain with the Company as a senior advisor.

“My tenure with Hello Group was such a gratifying journey. I consider the past 8 years with the Company as the most exciting part of my long career life. It has been an absolute privilege to work with the team and have built a great business.” said Jonathon Zhang. “I’m also pleased to pass the baton to Cathy. A long time deputy of mine, she is the right person to lead the team to continue their success.”

“Jonathon has made tremendous contribution to the Company over the past 8 years. He has been playing an indispensable role in transforming the company and guiding the team to enable our success. On behalf of the company, I want to thank Jonathon for his leadership and dedication and wish him much happiness in his next chapter.” said Li Wang, Chief Executive Officer of the Company. “At the same time, we are delighted that Cathy will transition into the CFO role. Her deep capital market experience, demonstrated financial acumen and leadership skills will serve her well in her new role.”

Prior to this expanded role, Ms. Peng serves as the Company’s Senior Vice President of corporate finance. In this role she is responsible for the company’s financial planning and analysis, strategic investment and acquisitions, as well as corporate strategy and investor communications. Ms. Peng joined the Company in 2015 as vice president of investor relations. Since then, she has played a key role in driving the company’s success in various capital market transactions. From 2007 to 2015, Ms. Peng worked for SINA Corporation as director of investor relations and a corporate treasurer. Prior to that, she worked for several public and private companies in TMT space where she served various roles in accounting, financial planning and analysis, M&As and corporate communications. Ms. Peng started her career in auditing at Ernst &Young from 2001. Ms. Peng received her bachelor degree in Economics from Peking University in 2001.

Business Outlook

For the first quarter of 2022, the Company expects total net revenues to be between RMB3.1 billion to RMB3.2 billion, representing a decrease of 10.7% to 7.8% year-over-year. This forecast reflects the Company’s current and preliminary views on the market and operational conditions, which are subject to change.

Note 1: Non-GAAP measures

To supplement our consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”), we, Hello Group, use various non-GAAP financial measures that are adjusted from the most comparable GAAP results to exclude share-based compensation, impairment loss on goodwill and intangible assets, amortization of intangible assets from business acquisitions, and tax impacts related to the amortization of intangible assets from business acquisitions.

Reconciliations of our non-GAAP financial measures to our U.S. GAAP financial measures are shown in tables at the end of this earnings release, which provide more details about the non-GAAP financial measures.

Our non-GAAP financial information is provided as additional information to help investors compare business trends among different reporting periods on a consistent basis and to enhance investors’ overall understanding of the historical and current financial performance of our continuing operations and our prospects for the future. Our non-GAAP financial information should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to the GAAP results. In addition, our calculation of the non-GAAP financial measures may be different from the calculation used by other companies, and therefore comparability may be limited.

Our non-GAAP information (including non-GAAP cost and operating expenses, income (loss) from operations, net income (loss), net income (loss) attributable to Hello Group Inc., and diluted net income per ADS) is adjusted from the most comparable GAAP results to exclude share-based compensation, impairment loss on goodwill and intangible assets, amortization of intangible assets from business acquisitions, and tax impacts related to the amortization of intangible assets from business acquisitions. A limitation of using these non-GAAP financial measures is that share-based compensation, impairment loss on goodwill and intangible assets, amortization of intangible assets from business acquisitions, and tax impacts related to the amortization of intangible assets from business acquisitions have been and will continue to be for the foreseeable future significant recurring expenses in our results of operations. We compensate for such limitation by providing reconciliations of our non-GAAP measures to our U.S. GAAP measures. Please see the reconciliation tables at the end of this earnings release.

Conference Call

Hello Group’s management will host an earnings conference call on Thursday, March 24, 2022, at 8:00 a.m. U.S. Eastern Time (8:00 p.m. Beijing / Hong Kong Time on March 24, 2022).

All participants must preregister online prior to the call to receive the dial-in details. Once preregistration has been complete, participants will receive dial-in numbers, direct event passcode, and a unique registrant ID.

PRE-REGISTER LINK http://apac.directeventreg.com/registration/event/1244109

To join the conference, simply dial the number in the calendar invite you receive after preregistering, enter the passcode followed by your registrant ID, and you will join the conference instantly.

A telephone replay of the call will be available after the conclusion of the conference call through 8:00 a.m. U.S. Eastern Time, April 1, 2022. The dial-in details for the replay are as follows:

International:     +61-2- 9003- 4211
U.S. Toll Free:   +1-855- 4525-696
Passcode:         1244109

Additionally, a live and archived webcast of the conference call will be available on the Investor Relations section of the Company’s website at http://ir.immomo.com.

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