Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's First Quarter 2024 Earnings Conference Call. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Huang Pu, Investor Relations Director of Sohu. Please go ahead.

Thanks, operator. Thank you for joining us to discuss Sohu's first quarter 2024 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and Vice President of Finance, James Deng. Also with us are Changyou's CEO, Dewen Chen; and CFO, Yaobin Wang. Before management begins their prepared remarks, I would like to remind you of the company's safe harbor statement in connection with today's conference call. Except for the historical information contained herein, the matters discussed on this call may contain forward-looking statements. These statements are based on current plans, estimates, and projections, and therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in annual forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 20-F. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed.

Thanks, Huang Pu, and thank you, everyone, for joining our call. In the first quarter of 2024, our top-line performance was in line with our expectations and our bottom-line performance exceeded our guidance despite the impact of seasonality. For Sohu Media and Sohu Video, we continue to enhance user experience by refining products and optimizing algorithms. We proactively integrated our product matrix and resources to stimulate content generation, consumption, and social distribution. Meanwhile, leveraging our unique IPs and differentiated advantages, we continue to host various events and campaigns, which not only stimulated users' interaction and content provision on our platforms, but also helped us gain more monetization opportunities. Online games delivered stable performance well in line with our expectations. Before going through each business unit in more detail, let me give you a quick overview of our financial performance. For the first quarter of 2024, total revenues were $139 million, down 14% year-over-year and 1% quarter-over-quarter. Brand advertising revenues were $16 million, down 29% year-over-year and 20% quarter-over-quarter. Online game revenues were $118 million, down 9% year-over-year and up 3% quarter-over-quarter. GAAP net loss attributable to Sohu.com Limited was $25 million compared with a net loss of $18 million in the first quarter of last year and a net loss of $13 million in the fourth quarter of last year. Non-GAAP net loss attributable to Sohu.com Limited was $22 million, compared with a loss of $13 million in the first quarter of 2023 and a net loss of $11 million in the fourth quarter of 2023. Now I'll go through our key businesses in more detail. First, Sohu Media and Sohu Video. We continue to improve our products, upgrade algorithms, and enhance the user experience during the quarter. We deeply integrated the Sohu News and Sohu Video apps to allow users to generate and distribute premium content across both platforms simultaneously. This resulted in a substantial addition of high-quality content to our product matrix, which in turn drove even greater content consumption and distribution. We held a variety of offline campaigns and continued to refine operations of online communities in various verticals. As a result, our user metrics and interactions have steadily increased. In this quarter, we hosted various events to improve user engagement, interactions, and further enhance the video social ecosystem, especially among the younger generation. We successfully hosted the offline event '2024 Spring Convention of Sohu Video Influencers' where users and live broadcasters in different verticals came together in person to share their perspectives and interact with each other. This event further fueled broadcasters' overall enthusiasm and vitality on our platform. During this quarter, we also launched the '2024 Sohu Video KeyPOP Master Class,' which attracted a large number of KeyPOP fans to participate in our events, generating fascinating KeyPOP-related content and widespread discussions across various social media platforms. Besides, we hosted several noteworthy events promoting traditional Chinese culture and customs, which also gained a lot of traction and recognition. We have consistently focused on building our unique IPs in the field of knowledge and live broadcasting and kept exploring innovative monetization opportunities. For example, we integrated 'Charles' Physics Class,' which I've been teaching for the last three years, into the '2024 Beijing International Automobile Exhibition,' which further expanded our brand influence while increasing our monetization capabilities. To cater to the needs of advertisers, we also adopted a new approach of live exhibitions at the '2024 China Home Appliance and Consumer Electronics Expo' in Shanghai. This not only allowed audiences to gain a deeper understanding of the product but also helped advertisers achieve better marketing outcomes, highlighting the unique monetization value we offer. Going forward, we will continue to leverage the advantages of the Sohu product matrix to provide differentiated marketing solutions for advertisers and drive advertising budgets. Now, turning to the online game business. During the quarter, online game ad revenues were in line with our expectations. For our mobile games business, we launched an expansion pack for 'Legacy TLBB Mobile' to celebrate the Chinese New Year and continue to optimize the skills of each character, resulting in stabilized user engagement. Next quarter, we will launch expansion packs and content updates for the TLBB series and other titles to keep players engaged. For new games, we launched a licensed card-based RPG 'New Westward Journey' in the Chinese Mainland on May 16, and its performance is in line with our expectations. As gaming technology rapidly advances and the market demand diversifies, we will creatively explore new ways to meet players' needs, expand our portfolio in international markets, and continue to invest in professional talent development as well as content and technology innovation to bring more high-quality games to the market. We will maintain our core competitiveness in developing MMORPGs going forward. We are also producing multiple types of games, including card-based RPGs, sports games, and casual games, etc. Now I would like to give an update on the ongoing share repurchase program. As of May 16, 2024, Sohu had repurchased 1.7 million ADS for an aggregate cost of approximately $17 million. With that, I will now turn the call to Joanna, our CFO.

Thank you, Charles. I will now walk you through the key financials of our major segments for the first quarter of 2024. All the numbers are on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our IR website. For Sohu Media and Sohu Video, quarterly revenues were $20 million compared with revenues of $30 million in the same quarter last year. The quarterly operating loss was $74 million, compared with an operating loss of $67 million in the same quarter last year. For Changyou's online game business, quarterly revenues were $119 million compared with revenue of $131 million in the same quarter last year. Quarterly operating profit was $55 million, flat with the same quarter last year. For the second quarter of 2024, we expect brand advertising revenue to be between $18 million and $20 million. This implies an annual decrease of 16% to 25% and a sequential increase of 12% to 24%. Online game revenues are expected to be between $133 million and $143 million. This implies an annual increase of 12% to 21% and a sequential increase of 13% to 21%. Non-GAAP net loss attributable to Sohu.com Limited is expected to be between $27 million and $37 million, and the GAAP net loss attributable to Sohu.com Limited is expected to be between $30 million and $40 million. This forecast reflects Sohu's management's current and preliminary view, which is subject to substantial uncertainty. This concludes our prepared remarks. Operator, we would now like to open the call to questions.

Our first question comes from Thomas Chong from Jefferies.

My first question is about our advertising business. How should we think about advertising segment common quarters? In particular, we have all impact in Q3. Should we expect our advertising to return to positive year-on-year growth in the second half? And that's my first question. And then my second question is about our online game guidance in Q2. Should we assume the sequential growth is mainly coming from our new licensed game? Or can we actually break out the contribution from a licensed game in Q2 that will be paid for? And then my third question is more about our capital allocation strategy. I think Charles you also mentioned that the aggregate amount that we repurchase is about USD 17 million. Just wanted to get some color regarding our full-year plan. Should we assume that any color about how much share repurchase we will do in the remainder of the year? Or should we think about the $150 million share repurchase program being fully used up in 2 years' time?

Well, let me answer your third question first, okay? So we've bought $17 million, and we have $150 million because of the daily volume that we can buy. So our plan is to finish the entire $150 million buyback, which will probably take 2 years due to the trading volume limitations. As for the first question on advertising, I think the macroeconomic situation is still fraught with uncertainty. Yes, there is some recovery in certain sectors in Q2, but not very strong, and advertisers are being cautious with their spending. So in Q2, we do have a quarter-over-quarter increase for brand advertising compared with Q1, but compared with last year, I'm not sure if we can achieve growth. It all depends on whether we can continue to develop our user base so that we can achieve advertising growth. The second question is about online gaming and whether there's a sequential increase.

There is some recovery in certain sectors in Q2, but it's not very strong, and advertisers are being cautious with their spending. In Q2, we do have a quarter-over-quarter increase for brand advertising compared to Q1, but I'm uncertain if we can achieve growth compared to last year. It largely depends on our ability to continue developing our user base to drive advertising growth. The second question pertains to online gaming and whether there's an increase from the previous period.

The sequential increase of our revenue is mainly from IP Fly High, which we launched in Japan and South Korea at the end of March, and also from New Westward Journey that we launched on May 16th in the Chinese Mainland. At the same time, there are some decreases in revenue from our older games. Thomas, I think I missed the second.

Yes. Regarding capital allocation, besides the buyback, we still need to maintain cash levels to effectively market and develop our products.

Our next question comes from the line of Alicia Yap from Citi.

I have a couple of questions. So number one is a follow-up on the guidance. I understand the sequential growth in the gaming guidance. However, given gaming is a high-margin and profitable business, why is your Q2 net loss guidance actually wider than what you delivered for the first quarter? Any color you can share about the expense side would be great. And the follow-up question on the buyback. I just wanted to make sure I got it correct. I think last quarter, you mentioned you bought back about $12 million as of the end of February and now that you have $17 million. So is it true that you executed about $5 million over the last 3 months or so? Is there any restriction on money transfer or moving out the money?

I think for your last question, it's just the daily limit. We'd like to buy back more, but we can't due to daily trading volume limits. Yes, I think your calculation is correct; over the last 2 months, we bought back $5 million. We hope that in the future, the volume will improve so that we can buy back more and finish the $150 million buyback plan as early as possible. As for the Q3 guidance, Joanna will address it.

The Q2 net loss guidance is wider than Q1 because we are spending more on marketing expenses for Changyou's new game.

Yes.

I see. So it's only for the game promotion, but nothing on like a step-up for the Video or Media business?

We do have a few TV dramas that already have spending incurred in Q1, so there is no increase in media spending.

I see. Okay. Helpful. Can I ask one last question? Charles, you mentioned that while the macro environment is uncertain, you did see a little bit of recovery in certain sectors in Q2. Can you share which vertical industry you actually see improvements in the second quarter?

I think FMCG is getting better, particularly in beverages and food. Also, the electric vehicle industry is seeing intense competition, which is pushing companies to spend, albeit less than before. Overall, advertising remains cautious.

I see. Just a quick follow-up on recent positive policy measures from the government, especially regarding real estate. Do you think overall sentiment from advertisers could improve in the second half?

I think the recent policies regarding the real estate industry do not have a direct positive impact on the advertising market. While consumer spending on travel is recovering, overall spending willingness is not strong, which will affect advertising outcomes.

I'm showing no further questions. Thank you very much for all of your questions. With that, we conclude today's conference call. Thank you for participating. You may now disconnect.

Okay. Thank you.