Momo Inc. (NASDAQ:MOMO) Q2 2019 Earnings Conference Call Transcript

Aug 27, 2019 • 08:00 am ET

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Momo Inc. (NASDAQ:MOMO) Q2 2019 Earnings Conference Call Transcript

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Presentation
Executive
Jonathan Xiaosong Zhang

back from the promotional efforts around the virtual gifting business. Therefore, the margins for VAS business also improved on a sequential basis.

Non-GAAP R&D expenses for the second quarter was RMB204.8 million compared to RMB116.1 million for the same period last year, representing 4.9% and 3.7% of total revenue, respectively. The year-over-year increase reflected our strategy to invest in R&D area throughout 2018, mainly to recruit additional engineering talents to support our various product innovation initiatives, as well as the full quarter consolidation of Tantan in second quarter 2019 versus only June month for the second quarter of 2018.

We ended the quarter with 2,075 total employees, of which 528 are from Tantan. The R&D personnel as a percentage of total employees for the Group was 54% compared to 45% in Q2 last year.

Non-GAAP sales and marketing expenses for the second quarter with RMB 502.3 million, or 12.1% of total revenue, compared to RMB308.9 million, or 9.8%, of total revenue for the same period last year. On a year-over-year basis, the increase in the sales and marketing expenses as a percentage of revenue was due to the full quarter consolidation of Tantan, while the core Momo non-GAAP sales and marketing expenses as a percentage of total revenue remained stable.

Our non-GAAP G&A expenses was RMB119.4 million for the second quarter 2019 compared to RMB78.6 million for the same quarter last year, representing 2.9% and 2.5% of total net revenue, respectively. The GAAP G&A expenses was RMB500.7 million for the quarter compared to RMB127.7 million for the second quarter last year. The Company recognized a G&A related share-based compensation of RMB381.3 million in the second quarter of 2019 compared to RMB49.1 million in the second quarter 2018. The big jump in the share-based compensation expense was due to the same one-off event that we discussed on our last earnings conference call.

Let me give a quick recap here. As we disclosed in our 2018 20-F, in August 2018, Tantan Limited granted 3,578,205 shares options to its founders with a full-year vesting period, representing 12% of Tantan's shares on a fully diluted basis. The vesting can be accelerated based on achievement of certain performance conditions. According to relevant US GAAP literature, a share-based compensation expense of RMB466.9 million was amortized in the first quarter 2019, based on the progress of achievement of the performance conditions as of March 31, 2019.

During the second quarter of 2019, the performance conditions were fully met and accordingly, we recognized a share-based compensation expense of RMB323.7 million in connection with above mentioned option grant. The amortization of the share-based compensation expense in connection with this option grant will have no future impact from Q3 onwards.

Non-GAAP operating income was RMB1.45 billion, representing 35% non-GAAP operating margin for the quarter. Excluding Tantan consolidation impact, the core Momo adjusted operating income for the second quarter 2019 would have been RMB1.5 billion, or 39% non-GAAP operating margin.

Now, turning to the balance sheet and cash flow items, as