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spk05: Good morning and good afternoon, ladies and gentlemen. Thank you for standing by for YALA Group Limited's third 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. I would now like to turn the call over to Ms. Carrie Gao, Director of IR of the company. Please go ahead, Ms. Carrie.
spk03: Hello, everyone, and welcome to YALA's third 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 our news allow services. Before we continue, please note that the discussion today will contain overlooking statements made under the safe harbor provision of the U.S. Private Security Litigation Reform Act of 1995. Overlooking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our earnings release and our registration statements 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 GAAP financial information as well as unaudited non-GAAP financial measures. Yala'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. Saifi Ismail, 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.
spk08: Thank you, Carrie. And thank you, everyone, for joining our 2021 first quarter earnings conference call. It has been a year since YALA's NLSC listing. Before updating you on our business progress during this quarter, I'd like to take a moment to elaborate on our mission, vision, and strategy. YALA was the first UAE technology unicorn to be listed in the U.S. As a company rooted in the Middle East and the North Africa, our mission is to provide MENA users with localized online social networking and entertainment services. For five years, we have been committed to promoting a healthy and orderly industry environment and providing MENA's people with better access to a digital life. MENA's population is among the youngest in the world, and we're reaching per individual average timestamp on apps is also considered the highest globally. Demand for online social networking and entertainment services is high among internet users. But historically, there have been few digital products reflecting local values or customized for local users specifically. When we drafted the perspectives for our IPO, we affirmed that our vision is to build MENA's most popular destination for online social networking and entertainment activities. After a year's time, this vision remained unchanged. We hope to realize this vision within the next 10 years, and we will apply two important strategies to achieve our goal. First, as we continue to develop Yale's ecosystem, we will diversify our business and revenue streams, and flexibly develop our business and products through investment, collaboration, and other means. Second, ELL's strong localization capabilities have always been our greatest advantage. We will continue to fortify and refine them with more comprehensive studies on local users' needs and preferences to provide customized, positive, and trendy online services. YALA is developing weapons while also facing challenges in an increasingly complex environment. Under such transformative circumstances, we thought it was critical to help our new colleagues better understand YALA's DNA and to think and act in YALA's way. We worked with all of our team members to define and refine Yale's core principles. Multicultural understanding uses first, simple, and target. Their initials constitute the memorable acronym MUST, which embodies Yale's culture and ethics. These values will guide Yale's team as we work to achieve our vision. Now let's take a closer look at some of our recent accomplishments. Last month, we released the Yellow Chat 0.2 version. We upgraded the app's foundation and improved stability and response rate, which elevate the user experience and will allow the product to support a larger user base in the future. We firmly believe that in this An IAM product with features tailored to local users' preferences is a fundamental need, and the MENA region has waited too long for a dedicated product. We feel a strong sense of responsibility to fulfill that critical need for MENA-based users. Developing a successful IAM product It's not easy, but it is a crucial element of our vision, and we are proud of our great attempt to fill this technological gap. We will continue to monitor user feedback on Yalachat's new iteration and perfect the details to cater to local users' desires. And we are aware The metaverse will be the next major revolution in social technology. Long before the metaverse concept began changing literally, our team was researching new types of social networking opportunities to provide users with a higher level of freedom and more immersive social experiences. We see strong potential for development and innovation in this area, and we are happy to share that they are working on a cutting-edge social app, which will feature the first-ever social metaverse designed for the MENA region. It might be available to our users as early as the first quarter of next year. We are also building and broadening our capabilities in game distribution. We now have a holding subsidiary, Yella Games, which will focus on the mid-core and hardcore game distribution business in the MENA region. We will identify and collaborate with game students with high potential and good content and to help distribute their games within MENA. Collaborating over strong localization capabilities, we plan to gradually opened our game distribution platform to more quality content, making Malaga Game the ideal media-based distribution partner for game developers in the near future. With respect to our internal initiative, we officially tickled our internal ESG program with Coder. We have been communicating intensively with internal and external stakeholders to gather feedback and refine our ESG guidelines. We believe a sustainable growth target is essential for Yala, our community, and our shareholders. Given the recent policies and initiatives announced by the UAE and Saudi Arabia in government, we understand that building a digital security is becoming a very important topic in this region. Our security is seeking a digital and technological transformation, which aligns with YALA's vision and mission. As a local captain, we support local government initiatives and strive to work in a direction consistent with their guidelines and priorities. Looking into the future, YALA will remain dedicated to the development of UAE's digital economy and continue to deliver online social networking, and entertainment products tailored to the community's culture. We are also proud to have fostered our leadership and governance with Corey. It is my honor to welcome Mr. Said Hamly to the board as our independent director. He is an accomplished telecommunication director with prior roles as CEO of East and South Egypt and . Among others, I believe that given his excellent leadership skills and extensive industrial experience, Mr. Saeed Hamdi will make great contributions to the company as we grow our product ecosystem, expand our footprint and our influence. I really look forward to working with him. In conclusion, I want to reiterate our vision is to build the most popular destination for online social networking and entertainment activities in MENA. And we will continue to uphold our core values of prioritizing our users, improving directives, and operating with a simple, pragmatic, pioneering, and enterprising approach as we work to achieve our goals Adhering to these principles has been the driver of our past success, and we ensure that we keep the students looking ahead. We will continue to closely watch MENA's local cultural change and develop YALA's ecosystem with various products and services tailored to meet local users' needs. Now I will turn this call over to our president, Mr. Saifi Ismail, for a closer look at our recent developments.
spk00: Thanks, Tau. Hello, everyone. Thanks for joining us today. In addition to the accomplished Tau chairs, we have made impressive progress with our new products 101OK, remained one of the most downloaded apps in the board game category in Turkey. We have received very good feedback from users on this product and are seeing an outstanding retention rate. The average daily time spent per active user already exceeds 60 minutes, which also demonstrates the product's increasing stickiness among users. We are dedicated to providing our users with best-in-class user experience. For example, in quarter three, we released a new version of Yalla Balut, a card game we designed for Saudi users. We enhanced certain features to help new users learn about the game's flow and become a more integrated part of the community, which notably improved new users' engagement level on the platform. Along with these new products designed for the MENA market, Yalla Barchi, the South American version of our Ludo app, also performed impressively. By the end of quarter three, Parchees contributed 786,000 of Yalla Group's monthly active users. Parchees is showing outstanding user stickiness, and our next step will be to cement our monetization strategy and begin to boost Parchees' monetization capabilities, taking South American culture differences into consideration. We are also very excited to share with you that Yalla Group is prominently featured on the official UAE government electronic portal, invest.ae, as a highlighted local technology company. The UAE government's recognition of our work inspires an even greater commitment to ensuring that our products and services exceeds our customers' expectations. Yalla Group is proud to be one of the top technology companies in the MENA region. We prioritize research and strive to develop innovative features in our existing social and gaming mobile applications, as well as create brand new apps to give our loyal users more engaging opportunities to express themselves. We believe Yalla Group has received this honor from UAE's government due to a large part of these efforts. We wish to sincerely thank the UAE government for their ongoing trust and belief in Yella Group. We remain undeterred in our continuing virtues of excellence and our efforts to maintain our leading position as one of the UAE's most prominent and thriving technology companies. Additionally, we are delighted to have won a prestigious Middle East Technology Excellence Award in the Gaming, Media, and Entertainment categories. The Middle East Technology Excellence Award recognizes technology companies that have successfully pioneered groundbreaking IT products and solutions in various categories in the Middle East. With recognition from specialized judges representing key players in the international digital industry, such as BWC Middle East and Becker Tilly Middle East, this award further solidifies our position as one of the MENA region's top companies. We now join an illustrious group of past winners, including IBM, LinkedIn, and Tencent. We view this distinguished award as yet another testament to Yalla Group's excellent work and our team accomplishments throughout the past year. We are proud to have created an immersive and social ecosystem filled with a variety of mobile applications that provide our users with memorable, and research experiences, whether they are talking to friends on Yalla or playing against them on Yalla Ludo. We would like to sincerely thank the Middle East Technology Excellence Awards Committee for this great honor. We hope to win many more regional and global awards over the next few years. Furthermore, in September 2021, we hosted an Annals Day to facilitate communications with our investment community. Our users team members, and industry experts shared their respective experiences with Yalla and the digital economy inside, presenting colorful, close-up views of what we do, our market, and its tremendous growth prospects. We would like to thank our expert guests to their valuable input. The analyst day was a great success, and we look forward to future opportunities to organize similar events. As our CEO mentioned, Yellow Vision has never changed. We aspire to become the number one online social networking and entertainment platform in the MENA region, and we remain focused on that goal. With that, I will now turn the call over to our CFO, Karen, who will discuss our key financial and operational reasons.
spk01: Thank you, Sefi. Hello, everyone. Thank you for joining us. We recorded a remarkable operating and financial performance in the third quarter of 2021 with a rapidly expanding user base, outstanding operating efficiency, and abundant cash reserves. Underpinned by our unique market positioning, our third quarter revenues grew by 110.8% year-over-year to 71.3 million U.S. dollars While our non-GAAP net income reached $33.2 million with a growth rate of 114.5% year-over-year. Our non-GAAP net margin remained exceptionally higher at 46.6%, reflecting our strong monetization capabilities and disciplined SG&A spending. Now I would like to walk you through our financial details during the third quarter of 2021. Our revenues were $71.3 million in the third quarter of 2021, a 110.8% increase from $33.8 million in the same period last year. The increase was primarily driven by the broadening of Yala Group's user base and the enhancement to Yala Group's monetization capabilities. Our average MAUs increased by 81.9% from 14.3 million in the third quarter of 2020 to 25.9 million in the third quarter of this year. YALA's MAU increased by 72.2% to 9.5 million in the third quarter of 2021 from 5.5 million in the same quarter last year. And Yala Ludo's MAU increased by 79% to 14.7 million in the third quarter of 2021, from 8.8 million in the same period of last year. And Yala Perky's MAU also reached 786,000 in the third quarter of 2021. Now let's look at our costs and expenses. Our cost of revenues was 23.4 million in the third quarter of 2021, compared with 25.6 million in the third quarter of 2020. The decrease was mainly driven by lower share-based compensation expenses of 1.3 million recognized during the third quarter of 2021. A 91% decrease from 14.1 million in the third quarter of 2020 and partially offset by an increase in commission fees for the third-party payment platforms resulting from our expanding business scale. Excluding share-based compensation expenses, cost of revenues as a percentage of total revenues decreased from 34.1% in the third quarter of 2020 to 31.1% in the same period of 2021 due to continued optimization of our revenue mix which resulted in less increase in commission fees for the third-party payment platforms. Our selling and marketing expenses were $11 million in the third quarter of 2021, compared with $8.5 million in the same period last year. The increase was mainly driven by higher advertising and marketing promotion expenses led by our continued user acquisition efforts and expanding product portfolio, and partially offset by decreased share-based compensation expenses of $1.8 million during the third quarter of 2021, compared with $4.5 million in the third quarter of 2020. Excluding share-based compensation expenses Selling and marketing expenses as percentage of total revenues remained relatively stable at 12.9% in the third quarter of 2021. Our general and administrative expenses were $7.3 million in the third quarter of 2021, compared with $28.9 million in the same period last year. The decrease was mainly driven by lower share-based compensation expenses of $4.6 million recognized during the third quarter of 2021, an 82.9% decrease from $27.1 million in the third quarter of 2020, and partially offset by an increase in salaries and other benefits from our general and administrative staff, This in turn was driven by an expansion of our general and administrative staff. Excluding service compensation expenses, general and administrative expenses as percentage of total revenue decreased from 5.3% in third quarter of 2020 to 3.8% in the third quarter of 2021 due to economies of scale. Our technology and product development expenses were $3.9 million in the third quarter of 2021, compared with $1.7 million in the same period last year. The increase was mainly driven by an increase in salaries and benefits for our technology and product development staff, and partially offset by decreased share-based compensation expenses of $0.2 million during the third quarter of 2021. which compared with $0.8 million in the third quarter of 2020. Extreme share-based compensation expenses, technology, and the product development expenses as percentage of total revenues also increased from 2.6% in the third quarter of 2020 to 5.1% in the same period of 2021. As such, Our operating income was 25.7 million US dollars in the third quarter of 2021, compared with operating loss of 30.9 million US dollars in the same period last year. If to ensure this compensation, non-GAAP operating income in the third quarter of 2021 was 33.6 million US dollars a 116.2% improvement from same quarter last year. Our income tax expenses was 0.42 million US dollars in the third quarter of 2021, compared with 0.11 million US dollars in the third quarter of 2020. Moving to the bottom line, our net income was 25.3 million US dollars in the third quarter of 2021. compared with net loss of 31 million US dollars in the same period last year. Including service compensation expenses, non-GAAP net income for the third quarter of 2021 was 33.2 million US dollars, a 114.5% improvement year-over-year. Now, next, I would like to briefly go through our liquidity and capture resources. As of September 30, 2021, we had cash and cash equivalents of $326.3 million as compared to cash and cash equivalents of $292.4 million as of June 30, 2021. This improvement demonstrates our commitment to continuously streamline and refine Yala Group's operations. On May 21, 2021, we announced the 2021 share repurchase program. As an update, in the third quarter, we repurchased 1,042,985 American depository shares, representing 1,042,000 985 Class A ordinary shares from the open market with cash for an aggregate amount of approximately 14 million US dollars. In the fourth quarter of 2021, we expect our revenues to be between 67 million US dollars and 72 million US dollars. The above outlook is based on the current market conditions and reflects companies' management current and preliminary estimates of market and operating conditions of customer demand, which are all subject to change. One more update before I hand the call over to the operator. Starting in the fourth quarter of 2021, as we continue to expand our product portfolio, we will report our MAUs and paying uses at the company level instead of byproduct to better reflect our increasing integrated product ecosystem. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
spk05: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. For the benefit of all participants on today's call, if you wish to ask your question to the management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. The first question comes from Shu Qi Gu with CICC. Please go ahead.
spk04: Thanks management for taking my question and congrats on your strong quarter. So I have two questions. The first question is about Yellowchat. So how will you differentiate Yellowchat from other IM products and how will you initiate the product with the SIP users? And my second question is about your margin. So how should we look at the long-term margin for your current business? Because the products must face growth pressure in the long run. Maybe could you share what the lowest margin might be that the company feels comfortable about? Thank you.
spk08: Hi. Good morning, Shichi. Thank you for the question. I'll take the first question. Our yellow chart version 0.2 can fulfill users' most basic needs for IAM products. As mentioned earlier, with this version, we enhanced the app's foundation and improved the product system. This helps provide users with a richer user experience and allows the app to support a larger user base. With future iterations, as we continue to upgrade, we plan to add more innovative, entertaining, and localized function. Regarding how to initiate the YALA chat with big users later, we have a significant advantage here that we can leverage. Our YALA community, over the past five years, we have built our own YALA community with over 20 million loyal users. This is the ideal environment from which to introduce YALA chat. So when we think YALA chat is ready, we will further polish and fine-tune the product within our existing community of users. Hope this answers your question. The second question, I will hand it to our staff or Karen.
spk01: Thanks, Tao. Thanks, Shiqi. Thank you for your question. About the margin, I think that every company needs to consider and prioritize different operation metrics at different stages. in this group. For Yala Group, we continually strive to optimize our monetization model. It's in our genes. But that doesn't mean that margin will always be the only metric we care about. In the future, it's possible that there will be other metrics that we will place higher importance on, depending on the needs of companies at that time. We are a young internet company with a lot of potential. There are a lot of things we need and want to do in the MENA region. Some of these include further building our brand, strengthening our market efforts, investing in R&D capabilities, continuing to expand our product portfolio, and growing our headcounts with red talents. So as we execute initiatives, our margin may fluctuate. We trust that investors understand that all of these investments target the goal of creating a more development-robust ecosystem and a more vibrant, engaged community, which will, in turn, driven the long-term growth. Currently, our net margin is about 45%, so we estimate that with just a 10% point fluctuation, will be able to support the operating needs I just mentioned. Naturally, we do not want to rule out the possibility of bigger moves if business needs arise. But with that side, I believe, compared with our peers, we will be able to maintain our margin at a very competitive level. Hope this answers your question. Thank you.
spk04: Sure. Thanks, Najmin.
spk05: The next question comes from Kai Feng Jai with CITIC. Please go ahead.
spk06: Hi, management. Thanks for taking my question. I have two questions. The first is about the new products. So can management share some updates about the yellow chart and any color about the monetization of the new products? The second is that for the first quarter and the 2022, We will be more positive on user growth, and I'm just wondering the strategic difference between South America and MENA. Thank you.
spk01: Thank you, Kaifeng. Thanks for your question. I will take the first question, and then our CEO, Jeff, will answer about the user growth. Just as I answered Shiqi for the last question, the monetization will depend on different product types. For social and casual game products, I think that the first priority after launch will be the building and expanding the user base, followed by product iterations. Immediately monetization may be not the primary consideration at this stage for these products. But for the mid to heavy game products, monetization may come faster. I hope this answers your question.
spk07: Hi, Kaifeng. So I will be answering your second question regarding the user growth and the strategy. Our expectation for MAU growth for fourth quarter is still 10% to 15% quarter over quarter. And for next year, since the user base will be larger, we expect each quarter our MAU to grow by around 10% quarter over quarter. Regarding the user acquisition strategy for South American market, yes, there's a difference from the middle market for sure. We need to consider many red Regen-specific characteristics, including local cultures, consumption patterns and levels, social traditions, and the competitive landscape, among other things. So we have different strategies and adjust them quarterly based on the dynamics of the marketplace, paying a watchful eye to such factors as our user acquisition pace, our monthly budget, and the actions of competitors, just to name a few. In summary, our acquisition strategy needs to be always evolving. Otherwise, we will see a decrease in efficiency. Hope that answers your question. Kaifeng. Thank you.
spk05: The next question comes from Yulin Zhong with Haikong International. Please go ahead.
spk09: Hello, management. Thanks for taking my question. I was wondering, have you had any new monetization initiatives, such as do you have any plan on ad live streaming, hardcore games? And if you have any, could you elaborate a little bit about your new monetization plan and when should we expect these new initiatives to contribute to revenue? Thank you.
spk08: Okay. Hi, Yiling. This is Yang. This is a topic we have been active discussing internally with our team. We have looked into and examined the possibilities in advertising, e-commerce, and others. And among all of these options, we believe at this stage, gaming is the next area of us to develop as a monetization channel. Thank you.
spk00: Thanks.
spk05: The next question comes from Thomas Shin with Nomura. Please go ahead.
spk02: Hi. Good morning, management. This is Thomas Shin from Nomura. I have a question on our user acquisition cost. As we have seen some peers adjusting their overseas marketing strategy, could management share more color on the trend of our user acquisition cost? Thank you.
spk07: Hi, Thomas. I'll be answering this question. So for the user acquisition cost, we believe that it will gradually trend upward, that's for sure. And that's true not just for Yellow Group, but for all Internet product companies around the world. All companies are competing for users, and we're one of them. However, compared with our peers, we have shown very strong ability in managing our user acquisition cost, and we will continue to do so. We're confident that we will be able to keep our user acquisition cost at a competitive level among all the peers. Thank you.
spk05: The next question comes from Yu Chen Yang with TS Securities. Please go ahead.
spk10: Hi, Benjamin. Thanks for taking my question. And congratulations on the strong result. So could you please just share your planning developing heavy game in-house? And are we going to see increasing R&D expense related to game this year or next year? And the second is, there are many more and more voice-centric social networking and entertainment companies joining this market. Could you please introduce YALA's advantages and how to maintain your leading position in the Amina market? Thank you.
spk08: Thank you, Yicheng. Good morning. After your questions, the first one about the games, our previous experience are more related to casual games. we will be cautious as we move into the realm of heavy games. At this stage, we plan to collaborate with external studios that have high-quality content instead of developing heavy games in-house. Through this collaboration, we will gradually grow our experience base and build our team. it's going to be a perfect. So we don't expect to see an immediate jump in the expenses related to heavy gains. And about the second question, the computation, yes, there are an increasing number of voice-centric social apps available in the market now. But what we want to emphasize is that Yala was a first voice-centric social networking and entertainment application in the media market. And for the past five years, we have always been the largest in the region. And we are always growing and innovating. Two years ago, we launched Yela Ludo in the market, and at that time, we were the first company to combine Tiger Game and voice chatting together. And now Yella Ludo has become the number one board game in MENA and leads the chance in the market. Yes, more and more companies are trying to replicate the success of Yella and Yella Ludo. But so far, we haven't seen any that can even come closer to challenging our position in the market. Yella Group has always been the trend leader in this market. Looking into the future, as a leading internet company in MENA, we understand the importance of innovation and are continuously uncovering new opportunities. As we just mentioned, we are going to launch the first metaverse social app designed for Arabic users. We believe the metaverse concept opens the door to new and exciting potential for web tracking scenarios to be realized. We will continue to invest in our R&D, encourage innovation among our team, build up our team with the right talent, and better prepare ourselves for future opportunities. Another thing I would love to mention, if we look at Yala Group's current ecosystem, we now have a more diversified product portfolio extending beyond world-centric social or entertainment apps. On our pipeline, we have casual games, a heavy game distribution business, a messenger product, a metaverse social app, and we may also look into other verticals with good potential. What I'm trying to say is that YALA Group is not going to only focus on rewards-related business. Our vision is larger than that. We intend to build the largest online social networking and entertainment platform in MENA. Thank you very much.
spk05: As there are no further questions, I would like to turn the conference back over to Ms. Carrie Gao for any closing remarks.
spk03: Thank you once again for joining us today. We look forward to speaking with you in the next quarter. If you have any further questions, please feel free to contact Yala's investor relations through the contact information provided on our website or the PS&A Group investor relations. Thanks.
spk05: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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