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Operator
Good morning and good evening, ladies and gentlemen. Thank you for attending Standing By for YALA Group Limits First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. Now I would like to turn the call over to your speaker host today, Ms. Keri Giles, IR Director of the company. Please go ahead, ma'am.
Keri Giles
Hello everyone and welcome to YALA's first quarter 2021 earnings conference call. We released our earnings earlier today and the release is now available on our IR website as well as on news file services. Before we continue, please note that the discussion today will contain forward-looking statements made under the State Harbor Provision of the U.S. Private Security Identification Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. But the information regarding these and other risks and uncertainties is included in our earnings release and our registration statement filed with the SEC. YALA does not assume any obligation to update any forward-looking statements except as required by law. Please also note that YALA's earnings press release and this conference call include discussion of unaudited gap financial information as well as unaudited non-GAAP financial measures. Yellow's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Today, you will hear from Mr. Tao Yang, our chairman and chief executive officer, who will provide an overview of our recent achievements and growth strategies. He will be followed by Mr. Saif-Ik Mayu, the company's president, who will give a brief review of our recent developments. Mrs. Karen Hu, our Chief Financial Officer, will then provide additional details on the company's financial results and discuss financial outlook. Following management's prepared remarks, we will open up the call to questions. Our Chief Operating Officer, Mr. Jeff Xu, will join the call for our QA session. With that said, I would now like to turn the call over to our Chairman and Chief Executive Officer, Mr. Tao Yang. Please go ahead, sir.
Yellow
Thank you, Carrie. And thank you, everyone, for joining our 2021 first quarter conference call. 2021 is off to a remarkable start. YALA Group's total revenue increased almost by 40 percent, and reached 67.6 million USD, exceeding the upper end of our guidance range by 7.4 percent. This better performance was driven by our continued efforts to grow our user community, the effective conversion of active users into paying users, and the further advancement of our monetization capabilities and initiatives. In the first quarter of 2021, we also maintained robust profitability, as demonstrated by our non-GAAP net margin of 49.7%. With the strong execution of our efforts to raise brand awareness across the Middle East and North Africa region, and our effective marketing campaigns tailored to the local culture, monthly active users for our group increased by 14.6% QMQ, and it reached 18.8 million. In addition, increasing User engagement on our platform drove Yala Group's paying users up by 11.5%, quarter over quarter, to 5.8 million, leading to outstanding paying ratio of 31%. Our vulnerability to monetize also continues to improve as our group's revenue increases. our pool grew rapidly by 25.5% quarter-over-quarter, reaching $11.6 in Q1. During previous earnings calls, we announced four new products in our pipeline. Three of them are casual game platforms, including Balloot for users in Gulf countries, 101OK, for Turkish users, and Yellow Touches for South American users. The data version of all these three Casio game products have been made available online, and we have also made great progress in refining the technology code and user interface details of these new products over the past quarter. Our president, Saifi, will share more details with you in his part later. Our fourth new product is YallaChat, an instant message or IM product designed specifically for Arab users. We are pleased to share that we launched the second version of YallaChat in March. With this strategically significant product, Yalla Group aims to build and strengthen connections among our individual apps and create an integrated and synergistic ecosystem. To this end, we have adopted measures to attract the right talent to join our lead and product team. This better version supports basic instant messaging functions, such as messaging, voice chatting, and radio chatting. Since its launch, our development team has continued to refine and enhance the product based on user feedback. and we will gradually roll out new design features and functions on the platform based on the local users' feedback and desires. The improvement and the iteration of IAM products is always an ongoing process, and the initial beta stage can take more than several months. We are dedicated to perfecting the details of the product before the team decides to officially launch the product, and start full promotion. As we mentioned in our last earnings call, Yella's top priority this year is to expand our user base with new products lined up for official launch. We plan to increase our sales and marketing activities to build out an initial user base for this product. For our existing two products, Yella and Yella Ludo, we will maintain our strategy steady user goals and don't expect to see much change in exciting things related to these two apps. Furthermore, as we continuously enrich our portfolio, we aim to amplify synergies among our various products and gradually build and develop a comprehensive Yala ecosystem. Our president, I think, will elaborate more on his ideas, on these ideas in a few minutes. We had an outstanding first quarter marked by strong girls across our primary operational and financial metrics. In just a few days, Yella is going to have its fifth anniversary. Five years ago, we identified WordChat to be uniquely suitable for online social networking and entertainment in Nina and pioneered the development of YALA as the first voice-centric mobile social networking and entertainment platform in the region. Over the past five years, our leadership in this field went from stress to stress, and we gradually enriched and enhanced the product we offer to better serve local users while affirming our mission to build the most popular destination for online social networking and entertainment activities in MENA. Looking ahead, we continue to closely watch trends in MENA's local culture, expand our friendly community, and build YALA's ecosystem with various products and services tailored to local users' needs. Now I will turn the call over to our president, Mr. Saifi Ismail, for closer look at our recent development.
Balloot
Thanks, Tao. Hello, everyone. Thanks for joining us today. As we continue to enrich our product portfolio, including Yalla, Yalla Ludo, and the four new products in the pipeline, we are looking to boost synergies among individual apps to develop a more integrated ecosystem. which will help us improve efficiency in acquiring new users going forward. With this move, we expect to see an increase in the flow of users from application to application, especially between the chat rooms available on each of our products. We also anticipate seeing an increase in users' awareness of the multiple products and services provided by the Yalla Group, which will, as a whole, lead to a larger user base, longer time spent in Yalla's ecosystem, and deeper brand loyalty in the long run. We recently tested the effectiveness of advertising Yalla on Yalla Ludo in a few regions, and the resulting traffic gain for Yalla was solid. While we have observed good potential for cross-selling on Yalla Ludo, before we decide to launch this project officially, we plan to run more trials, Essentially, we will test the concept in a few countries. First, progressively apply it to all other countries that we operate in and potentially replicate the same process to help promote our upcoming new products or even collaborate with other apps in the future. Another exciting update we would love to share with you and our investors here is about our new product, Yalla Purchase. As UAE's first technology unicorn listed on the NYSE, besides focusing on serving our Minas users' needs in the internet era, Yalla is also exploring overseas opportunities in the South American market. Our first product customized for South America purchase has received very good user feedback in its beta trial, and we are very encouraged by its user metrics that we are constantly evaluating. We will keep monitoring the trend, and we will share more updates for purchase development with you next time. Yalla will continue to leverage the team's deep local insights to provide MENA local users with various products tailored to their needs and preferences, as it remains dedicated to building and developing the Yalla ecosystem. Our mission is to become the number one provider for online social networking and entertainment in the MENA region. and we are well on our way to achieve it. With that, I will now turn the call over to our CFO, Karen, who will discuss our key financial and operational results.
Tao
Thank you, Sefi. Hello, everyone. Thank you for joining us. Our strong performance sustained into this first quarter as we steadfastly executed our group strategy that prioritizes youth experience and community development Our first quarter revenues grew by 221% year-over-year to $57.6 million, while our non-GAAP net income reached $33.6 million, with a growth rate of 263.7% year-over-year. Our non-GAAP net margin remained elevated 49.7% reflecting our unique monetization strategy, marketing positioning, and strong operating efficiency. Now I would like to work through our financial details for the first quarter of 2021. Our revenues were 67.6 million USD in the first quarter of 2021, a 221% increase from 21.1 million USD in the same period last year. The increase was primarily driven by the widening of both YALA and YALA Ludo's user base and the enhancement in YALA Group's monetization capabilities. Our average MAUs increased by 206.9 cents from 6.1 million in the first quarter of 2020 to 18.8 million in the first quarter of 2021. Yala's MAU increased by 81.6% to 7.3 million in the first quarter of 2021, from 4 million in the same period of last year. And Yala Ludo's MAU increased by 445.4% to 11.5 million in the first quarter of 2021, from 2.1 million in the same period of last year. In addition, another primary contributor to our solid revenue growth was the significant increase in the number of paying users, which grew from 1.6 million in the first quarter of 2020 to 5.8 million in the first quarter of 2021. Now let's look at our costs and incentives. Our cost of revenues was 24 million USD in the first quarter of 2021. Excluding share-based compensation expenses, cost of revenues in the first quarter of 2021 was 22.3 million USD, a 227.2% increase from 6.8 million USD for the same quarter last year. The increase was primarily due to an increase in commission fees for third-party payment platforms resulting from our expanding business scale. If truly share-based compensation expenses, other components of cost of revenues as a percentage of total revenues remained relatively stable at 33% in the first quarter of 2021 compared with 32.3% in the same period in 2020. Our selling and marketing expenses were 8.4 million US dollars in the first quarter of 2021. It's clearly share-based compensation expenses. Other components of selling and marketing expenses for the first quarter of 2021 were 5.1 million USD and 81.7% increase from 2.8 million USD for the same quarter last year. The increase was primarily due to higher advertising and marketing promotional incentives as a result of our continued youth acquisition efforts. These three share-based compensation incentives are the components of selling and marketing incentives as a percentage of our total revenue decreased from 13.4% in the fourth quarter of 2020 to 7.6% in the same period in 2021, primarily due to strong growth in organic user acquisition through watch of malls, referrals, as well as brand impact, and enhanced marketing efficiency. Our general and administrative incentives were 11.8% 7 million USD in the first quarter of 2021. Excluding share-based compensation expenses, other components of general and administrative expenses for the first quarter of 2021 were 3 million USD, a 124.4% increase from 1.3 million USD for the same quarter last year. which was primarily due to an increase in salaries and other benefits for our general and administrative staff, which was in turn driven by an expansion of our general and administrative staff. Including share-based compensation expenses, other components of general and administrative expenses and percentage of our total revenues dropped from 6.4% in the first quarter of 2020 to 4.4% in the first quarter of 2021 due to economies of scale. Our technology and product development expenses were 3.3 million USD in the first quarter of 2021. These three share-based compensation expenses are the components of technology and product development expenses for the first quarter of 2021 were 3.2 million USD. a 277% increase from 0.9 million USD for the same quarter last year. The increase was primarily due to an enhancement in salaries and benefits for our technology and product development staff, which was in turn driven by an expansion of our technology and product development, arriving from higher investment in new products and services. As a result of these reasons, other components of technology and the product development instances as percentage of our total revenue rose from 4% to 4.7% year-over-year. As such, our operating income was 20.2 million USD in the first quarter of 2021. Compared with operating income of 9.2 million USD in the same period last year. Including share-based compensation, non-GAAP operating income for the first quarter of 2021 was 34 million USD, a 267.8% improvement from the same quarter last year. Our income tax instance was 0.43 million USD, in the first quarter of 2020, in comparison to 0.19 million USD in the first quarter of 2021. Moving to the bottom line, our net income was 19.8 million USD in the first quarter of 2021, a 114.6% increase from 9.2 million USD in the same period last year. including share-based compensation expenses, non-GAAP net income for the first quarter of 2021 was 33.6 million USD, a 263.7% improvement year-over-year. Next, I would like to briefly go through our liquidity and capital resources. As of March 31, 2021, We have cash and cash equivalents of 261.7 million USD as compared to cash and cash equivalents of 236.9 million USD as of December 31, 2020. This improvement demonstrates our resolve and capabilities to improve Yala Group's operations on a consistent basis. As we enter the second quarter, with the Ramadan fasting period taking place across MENA between 13th April through 12th May in 2021, we expect to have a relatively moderate revenue boost due to potentially reduced social and entertainment activities, which is an annual seasonal impact. We expect our revenues to be between $65 million USD and 71 million USD in the second quarter of 2021, taking the sustainability into consideration. Looking ahead, we will leverage our team's deep local insights, continue to develop the Yala ecosystem, and enhance our brand building to further pave the runway for long-term growth. As we are committed to delivering a superb experience to our users and meaningful returns for shareholders. The bar of outlook is based on the current market conditions and reflects the company management's current and preliminary estimates of marketing and operation conditions and customer demands, which are all subject to change. This concludes our prepared remarks for today. Operators, we are now ready to take questions.
Operator
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the key. To draw from the question queue, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. The first question today comes from Faya Hao with Haitong International. Please go ahead.
Faya Hao
管理層,上午好,感謝接受我的提問。 那我主要是想請教一下關於Yala Patches的一些問題。 因為剛才Savvy也說,就是Patches現在有一些比較好的一些發展。 那就想請教一下,就是Patches目前的一個進展如何? 有沒有一些用戶方面的數據可以分享一下? I will translate for myself. Thank you, management, for taking my questions. And congrats on a strong quarter. So my question is mainly related to the Yala purchase. Could you please provide some colors to the current stage of Yala Purchase, such as MAU revenue, user profile, time span, and user pain behavior? And what is the most active country for Yala Purchase now, and when are you going to officially launch the product?
Yellow
Thanks. Hi, Fayat. I have another question. Based on the feedback we received, which clearly showed love for Yellow Patches from users in South American markets. We believe Patches has the potential to become a popular product in this region. We have already started the promotion of Yellow Patches in Q1. And according to the app and its data, it is already among the top five in six countries under the board game category in Android. And we will continue to monitor the engagement chart and look forward to sharing more back-end data with you next quarter. We are starting to strengthen our campaigns in Q2. The members like the MAUs, the other operations that we will provide, we prefer to provide you later next various call.
Faya Hao
Thank you, Ms. Dan.
Operator
The next question comes from Bo Pei with Oppenheimer. Please go ahead.
Bo Pei
Hi, management. Thanks for taking my question. So I do have two quick questions here. So first is I guess our non-GAAP margin actually improves sequentially in 1Q. I guess that's because we haven't started spending on sales and marketing yet. My question is, when do we plan to spend more on sales and marketing, especially for our new products? And then when we do that, what's going to be the impact on our net income margin? And then the second question is about our MAU growth outlook. So last time we talked about 10% to 15% sequential growth for each quarter of this year. So can management comment on that? Any update on that? And then how should we think about the MAU outlook for the new products? For example, by the end of this year, what's going to be the user size for the new products? Thank you.
Tao
Thank you, Bo. Thank you for your question. Super Q1, Yala achieved very good net margin again. And for Q2, since we have going to four promotions of our new products, we will see some increase from that to our margin. In terms of how much we are going to spend in sales and marketing, it really depends on users' feedback and marketing dynamics. We will adjust our promotion strategy accordingly and in time to maximize the efficiency of spending. For the yellow and the little MAUs outlook, as we mentioned last quarter, we think that both products MAU will grow by 10% to 15% quarter over quarter in 2021. And for the new products MAUs outlook, we think that it will depend on the user feedback and for the marketing progress. Thank you for your question.
Bo Pei
Got it. Thank you.
Operator
The next question comes from Ka Zhang with CITIC. Please go ahead.
Ka Zhang
Hi, management. Thanks for taking my question and congratulations for strong culture. So my question is about the Yala chat. So in terms of the instant message product, how to see the competition from other products like WhatsApp? And what is your user growth strategy and timeline for Yala chat? Thank you.
Yellow
Good morning, Kaifeng. I would like to answer this question. As a company with local teams based in UAE, we are dedicated to offering an AI product that's tailored to Arabic users' last nationality using habits and preferences, which is the main difference between Yellowchat and WhatsApp. We will build many localized features for this product. and continue to refine it based on local users' feedback. And in terms of user growth strategy, when we think the product is ready, we will introduce Yellow Check to users in our Yellow community from Yellow and Yellow Ludo and other products and encourage them to give it a try. In this way, we will be able to leverage the community we have built and the social connections we have faltered over the past years. Thank you.
Ka Zhang
Okay, thank you.
Operator
The next question comes from Chiki G. with CICC. Please go ahead.
Shiqi
Thanks, Benjamin, for taking my question. First, I would like to congratulate for being another strong culture. I have a question regarding your product pipelines. Currently, both of Yala's products are voice-centric, since video entertainment applications have gained a lot of attention these days. Do you have any plans to launch video-centric products in the future? Can you please share more color about that? Thank you.
Yellow
Thank you, Shiqi. At this point, we don't have video-centric products in our pipeline, but it doesn't mean that we will only focus on voice-centric products. We will keep monitoring media users' needs and chances in social networking and entertainment, and we will continue to adjust our strategy accordingly. Thank you.
Shiqi
Thank you.
Operator
The next question comes from Fiona Fan with Jefferies. Please go ahead.
spk08
Hi, management. Thanks for taking my question. And congratulations on the great results. So I have two questions. So the first question is about the strategies of user acquisitions. So I would like to ask, are there any differences of user acquisition strategies for different products and in different regions? So like, for example, we launched a new product in South America. So what will be the marketing strategies there? And my second question is about mid to long-term outlook. So could management share some colors about outlooks for two to three years from now, like geographic expansion and business line expansion of the products offering. Thanks.
spk03
Thanks for the question. This is Jeff. I'll be answering the question. Through running marketing campaigns on Yala and Yalaludo over the past five years, our team has gained valuable experiences and gradually built strong capabilities in marketing. Our high user acquisition efficiency can be demonstrated by our excellent excellence control in sales and marketing, and the consistent increase in our MAUs. Besides the traditional user acquisition through advertising on media, both of our Yala and Yala Ludo has also shown strong organic growth. And at the same time, because of the high quality of the product and deep localization, our products have also been recommended for free by top platforms like Apple and Google. These all contributed to our successful user acquisition. For every new product, We will design marketing plans based on our understanding of the product's special characteristics. And we will always follow our own pace in execution and adjust our strategy according to the feedback, the metrics that we keep monitoring. As I said, it's always a very dynamic process. We also have different plans tailored for different registers to maximize the efficiency of planning. So for the upcoming promotion of our new product, we're very confident in our team's capabilities to achieve strong results. Thank you for the question again.
Yellow
And I'll be answering the second question. I think for the next two and three years, MENA will certainly be our main focus. And with the Yala Patches launch, we will keep an eye on the South American market and see if there are any other potential opportunities. In addition to Yala, Yala Ludo, and four new products we introduced earlier, We will continue to monitor local users' needs and preferences and identify further opportunities to serve MENA users. At the same time, as we introduced earlier, we will gradually start to drive traffic from one product to another with the dedication to build and develop our Yala ecosystem, which will, as a whole, lead to a more integrated user community, longer time spent in Yela's ecosystem, and deeper brand loyalty in the long run. Thank you, Fiona.
Operator
Thanks. As there are no further questions now, I'd like to turn the call back over to management for any closing remarks.
Keri Giles
Thank you once again for joining us today. We look forward to speaking with you in the next quarter. If you have further questions, please feel free to contact Yalos Investor Relations through the contact information provided on our website or the PS&A Group Investor Relations.
Operator
This concludes the conference call. You may now disconnect your line. Thank you for attending.
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