Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu's First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I’d 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 2025 results. On the call are Chairman and Chief Executive Officer, Dr. Charles Zhang; CFO, Joanna Lv; and the 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 common 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 events. 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 containing any 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 recently 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 2025, both our marketing services revenues, which is formerly known as the brand advertising revenue, and non-GAAP bottom line performance reached the high end of our previous guidance, while our online game revenues were well above our expectations. For the Sohu Media platform, in addition to devoting efforts in product requirements and technology improvements, we continue to concentrate on strengthening the distinctive social features of our platform. Through various unique events, we were able to engage with more users while promoting vigorous social interactions and distribution on our platform, generating massive premium content at the same time. Leveraging our competitive advantage as a mainstream media platform and our unique IPs, we proactively explore greater monetization opportunities. The online games business also achieved a satisfactory performance, thanks to the high-quality content updates and continual improvements to our games. Before going into each business unit in more detail, let me first give you a quick overview of our financial performance. For the first quarter of 2025, total revenues were $136 million, down 3% year-over-year and up 1% quarter-over-quarter. Marketing services revenues were $14 million, down 15% year-over-year and 27% quarter-over-quarter. Online game revenues were $117 million, flat year-over-year and up 7% quarter-over-quarter. GAAP net income attributable to Sohu.com Limited was $182 million compared with a net loss of $25 million in the first quarter of 2024 and a net loss of $21 million in the fourth quarter of 2024. In this quarter, the company reversed a tax expense that had been previously recognized as an uncertain tax position and its related accrued interest expense at approximately $199 million. Excluding this, the non-GAAP net loss attributable to Sohu.com Limited was $16 million compared with a net loss of $22 million in the first quarter of 2024 and a net loss of $15 million in the fourth quarter of 2024. Now I will go through our key businesses in more detail. First, Sohu Media platform. We continuously optimized our products and employed cutting-edge technologies while further strengthening the social network features. By strategically integrating resources across our platforms and leveraging the synergies created by our unique offline events, we successfully attracted a wide range of broadcasters, who are also our users from diverse fields and greatly increased their engagement. These helped to generate more high-quality content, further promote online social interaction and distribution, and ultimately build a vibrant and dynamic social community on our platform. In April, we successfully hosted the 2025 Spring Convention of the Sohu Video influencers in Haidian, Beijing, where we gathered hundreds of pop stars, KOLs, and broadcasters and users in diverse verticals such as K-pop and Chinese customers among others. This event offered a chance not only for enthusiastic participants with similar interests to connect and share in person, but also for them to get to know and interact with those in different fields and thus further boosted the vitality of our platform. This quarter, we also hosted our traditional flagship event, the 17th Sohu News Marathon in Weihai City. As an influential cross-border marathon in China, this season's event continued to be presented through immersive live broadcasting, attracting both online and offline participation. This event not only generated a large amount of content from real-time updates posted by runners during the marathon and other derivative content after the race, but also promoted continuous dissemination of related content supported by the active social atmosphere on our platform. We also continue to attract users and audiences as well as advertisers with a distinctive Physics class IP. In April, I was invited to give a physics lecture at the Beijing Planetarium, reflecting a wide recognition of the Physics class brand and Sohu's leading position in the popularization of physics sciences. At the same time, we continue to explore the monetization potential of this IP and its derivatives, such as everything related to physical principles. For example, we combined the Physics class with famous exhibitions such as the 2025 China AWE, the Appliance and Electronics World Expo in Shanghai, and the 2025 Shanghai International Auto Industry Exhibition. In these exhibitions, we provided audiences with live explanations of the physics principles involved in integrating the exhibited products, which effectively built up connections between advertisers and audiences. Through these efforts, we were able to provide advertisers with customized marketing solutions and further demonstrated our unique monetization value. Besides the content generated from the above events, we also proactively expanded our content library. During the quarter, we released several original dramas and American TV series, while introducing a large number of short dramas, among which Mystic Tales, Bu Si Yi: Zhi Guai, and other American TV episodes like Mandalorian were well received by our audiences. Next, turning to our online game business. During the quarter, our online game business performed well with revenues exceeding our prior guidance. In our PC game business, we rolled out various holiday events around Chinese New Year and Valentine's Day, as well as promotional events for regular TLBB PC. In addition to holiday events, we upgraded a character development system for TLBB Vintage to give players a whole new gaming experience. For Legacy TLBB Mobile, we launched an expansion pack to celebrate the Chinese New Year, featuring a variety of festival themes and rich benefits for players. Thanks to these efforts, both player engagement and revenue for this game remained stable on a sequential basis. Next quarter, we will continue to launch expansion packs and content updates for the TLBB series and other titles to further engage players. As market competition intensifies and user demand for quality and innovation continues to rise, we will forge ahead with our top game strategy, staying true to our user-centric philosophy. We'll continue to optimize our R&D process and enhance execution to improve efficiency and product success rate. With these efforts, we look to bring more high-quality games to the market. Specifically, in terms of product development, we are actively exploring opportunities to unlock the potential of our TLBB IP. Meanwhile, as we maintain our core competitiveness in MMORPGs, we will diversify our portfolio with multiple types of games, including card-based RPGs, sports games, and casual games, and expand our portfolio for global markets. Now let me give an update on the ongoing share repurchase program. As of May 15, 2025, Sohu had repurchased 5.5 million ADS for an aggregate cost of approximately $67 million. With that, I will now turn to our CFO, Joanna. Joanna, please.

Thank you, Charles. I will now walk you through the key financials of our major segments for the first quarter of 2025. All 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 platform, quarterly revenues were $70 million compared with $20 million in the same quarter last year. Quarterly operating loss was $70 million compared with an operating loss of $74 million in the same quarter last year. For Changyou, quarterly revenues were $180 million compared with $190 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 2025, we expect marketing services revenues to be between $60 million and $70 million. This implies an annual decrease of 14% to 19% and a sequential increase of 17% to 24%. Online game revenues are expected to be between $96 million and $106 million. This implies an annual decrease of 28% to 35% and a sequential decrease of 10% to 18%. Both non-GAAP and GAAP net loss attributable to Sohu.com Limited is expected to be between $20 million and $30 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.

Thank you, management. The first question comes from Thomas Chong of Jefferies. Please go ahead.

Hi. Good evening. Thanks, management for taking my questions. My first question is about our marketing services. Can management comment on the recent trend in advertising sentiment? And how is it across different categories such as FMCG, IT, auto, food, and electronics? And how should we think about the second half advertising outlook? Should we expect a recovery trend in advertising momentum in the second half? And my second question is about AI. Can management comment on how AI benefits our advertising and online games operations? Are we seeing any eCPM or traffic benefits from better recommendations? And also for gaming, are we seeing efficiencies or productivity increases in our gaming business? Thank you.

Okay. The first question is about the marketing services, which is formerly called advertising. In this quarter, sector-wise, auto is doing better, and yes, 26%. So auto is doing better, and IT services stay stable, and FMCG is stable, but luxury goods and alcohol spending is decreasing a little bit. So that's the overall situation. For the second half, I think it will probably be similar. The economy is still not doing well, so we will only expect to look forward to talking to our social network platform to have accelerated growth so that we have a much larger market share of the advertising market. Your second question is about the AI impact. First of all, AI and DeepSeek development. Since our platform media now takes the social network as our central strategy, social network primarily focuses on people-to-people interaction. It has relatively less exposure to AI and large models than information retrieval services like search engines or recommendations. Yes, we do have recommendations on our Sohu News app and the Sohu Video, but our strategy is centered around the social network, so it has less impact from these developments. Of course, we can take advantage of AI to improve efficiency, such as content generation, abstracts of articles, and live streaming tools to help users with better tools, but it's kind of marginal. For online gaming, I think AI impact is beneficial. It helps.

We do have recommendations on our Sohu News app and Sohu Video, but our main focus is on the social network, which means these developments have less of an impact on us. We can leverage AI to enhance efficiency, such as through content generation, article summaries, and live streaming tools to provide users with better resources, but these gains are somewhat limited. In terms of online gaming, I believe the influence of AI is positive. It is beneficial.

We have extensively utilized AI technology in various areas, including art design, art production, UI design, audio effects design, and marketing materials. This has significantly enhanced our efficiency. Additionally, we have made progress in planning by allowing AI to learn independently. Thank you.

Thank you.

Thank you for the questions. One moment for the next question. The next question comes from Alicia Yap of Citigroup. Please go ahead.

Hello. Thank you. Good evening, Charles and management. Thanks for taking my questions. I have two, three questions. First, I wanted to follow-up on AI. Just wondering which AI model Sohu is currently integrating or incorporating into your gaming? Are you using DeepSeek or other comparable AI large language model? I understand you mentioned the social network on your media, which is less impacted. But if you were to incorporate that into your search and recommendation functions within your Sohu portal, which AI models or tools would you be using? I assume you're not going to develop your own large language model. This is the first question. Thank you.

Yeah. Both in our Sohu Video app and the Sohu News app, both now are social network-centered applications, but they also have recommendation channels and a search box. Both of them are integrating some DeepSeek and we actually developed, based on some open-source language model, we developed our own model.

Yeah. Both in our Sohu Video app and the Sohu News app, which are centered around social networking, we also have recommendation channels and a search box. Both platforms are integrating some DeepSeek, and we've actually developed our own model based on an open-source language model.

For the online gaming business, we've utilized various AI tools and large language models in different areas, such as art design, audio or music, and video production. Additionally, we created our own AI agent that can adapt to our specific needs and integrate different AI tools to complete tasks automatically.

Okay. Thank you. My second question is, I actually don't quite understand the tax reversal. So, can you elaborate again on what business that relates to the tax reversal that you have to gain this quarter?

Tax reversal.

The tax gain that you actually have.

Okay. Tax, I think it's an accounting issue. So let me let Joanna expand.

This is mainly accounting treatment. The nature is on certain tax methods calculated by weighted average basis according to different possibilities. Now that the uncertainty is gone, in this quarter we totally reversed the expense.

I see. Is that related to the Sohu Media business or is it the gaming business?

Sohu.

Sohu Company.

Okay. I see.

It's an accounting issue. We're not losing any cash or real money; it's simply an accounting matter.

I see. Okay. And then the last question. I know we have less risk, but obviously, this whole ADR delisting risk is on and off, right, as the headwinds or the noises arise. Just in the event that risks go up again, is management thinking about any alternatives, like, coming back to Hong Kong for the secondary listing? I appreciate any comment on that.

It's still uncertain. We will address it when something occurs, but right now, there's nothing happening. It's mainly speculation.

I see. But if it comes to that, then do you have an alternative plan that you are already thinking about?

Not thinking about it. So when it happens, we'll start thinking about it.

Okay. All right. Great. Thank you.

We always have time. We are not required to be listed, so we can take as much time as we need to consider those issues.

Okay. All right. Okay. Great. Thank you. Thank you so much, Charles. Thank you for the answer.

Thank you for the questions. There are currently no further questions at this time. That concludes today's conference call. Thank you all for participating. You may now disconnect your lines.