Yalla Group Limited

Good morning and good evening, ladies and gentlemen. Thank you for standing by for Yellow Group Limited's second quarter 2025 earnings conference call. At this time, all participants are in 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 will turn the call over to your speaker host today, Ms. Carrie Gao, IR Director of the company. Please go ahead, ma'am.

Hello, everyone, and welcome to YALA's second quarter 2025 earnings conference call. We issued our earnings press release earlier today, and it is now available on our IR website as well as on newswire outlets. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation 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. Further information regarding these and other risks and uncertainties is included in our earnings release and our annual report 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 a discussion of an audited 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 latest achievements and growth strategies. He will be followed by Mr. Saifi Ismail, the Communist President, who will briefly review our recent business developments. Mrs. Karen Hu, our Chief Financial Officer, will then provide additional details on the company's financial results and discuss our financial outlook. Following management's prepared remarks, we will open the call to questions. Mr. Jeff Xu, our Chief Operating Officer, will join the Q&A section. 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.

Thank you everyone for joining our second quarter 2025 earnings conference call. We delivered another strong set of results in the second quarter of this year. Our total revenues close to 84.6 million USD. Once again, beating the high end of our guidance. We also made significant strides in improving our operational efficiency by optimizing user acquisition strategies and refining our internal processes. which contributed to a year-over-year expansion in our net margin to 43.2%. This impressive performance demonstrates our ability to increase user engagement across our ecosystem and achieve high-quality, efficient growth by anticipating and meeting the MENA's evolving social networking and entertainment needs. Throughout Yala's history, the company has been committed to the long-term development of MENA's local internet industry. We were one of the first to explore online entertainment in the region, and over the past 10 years, our team has grown from six people to over 800 employees, serving over 40 million MAUs across the MENA region. Our product strategy prioritizes creating products with the potential to reach a massive user base while also demonstrating a long-lasting cycle. We strive to develop sustainable business models for long-term growth, and we remain confident that our commitment and patience will pay off as it has over the last decade. This Q2 marks the 9th anniversary of Yala's launch. For Yala Ludo, one of our flagship products and Amina's leading casual game platform, we expect its life cycle to reach 10 to 15 years or even beyond. We continue to operate our products with great dedication, fostering a friendly, positive, and vibrant online community. Building on our core business strong fundamentals, We're also strategically expanding into new verticals to capitalize on Mina's digital transformation, leveraging our substantial user base, localized expertise, and strong user acquisition capabilities. We have broadened our business footprint with game distribution services. We hope to become an indispensable resource for leading global game content providers who are as excited as we are about the MENA market. We are primed to have good games of all kinds launching MENA efficiently and effectively. Furthermore, as our user scale grows, we are also exploring opportunities to expand into additional online local services to reach even more users across MENA. Moving on to our new gaming pipeline for this year, we have continued to strategically invest in micro and hardcore games with a robust product pipeline featuring multiple new titles scheduled for release in the coming two quarters. In the third quarter, we expect to release two Max 3 titles targeting distinct user segments. In the fourth quarter, we aim to release another self-developed roguelike game while also preparing for hardcore games distribution in collaboration with a leading game developer. We will continue to refine our gaming business strategy and plan to ramp up external partnerships and our games distribution capabilities going forward to more effectively diversify our product portfolios. This allows us to explore a broader range of game genes and offer users more diverse options while gaining deeper insight into market dynamics and a more precise understanding of user advertised in the MENA region. Technology is another key factor driving our growth. As part of our efforts to propel technology innovation and talent development, we initiated a new round of internship collaborations with Mohammed Bin Zayed University of Artificial Intelligence with a focus on AI application projects by integrating cutting-edge academic research insights with real-world industry practices. This partnership among industry, academia, and research institutions injected fresh ideas and intellectual resources into our ongoing technology innovation, while also deepening Yala's long-term commitment to advancing the development of Minas AI ecosystem. Before I turn the call over to Saifi, update on our shareholder repurchase plan. In the first quarter, we allocated an additional 22 million USD, bringing our total minimum commitment to 50 million USD for the full year. We continue to execute our share repurchase program, consistently enhancing our shareholder returns. In the first half of this year, we made encouraging progress. As of June 30th, 2025, the company had repurchased a total of more than 6.2 million ADS to a total of 41 million USD in this year, completing 82% of our 2025 minimum goal. We will continue with displaying the execution of the share repurchase program through the end of the year and expect to reach or potentially exceed our full year goal. We remain open to further scaling up our execution under the current share repurchase program. Furthermore, as we mentioned on our last call, the company has decided to cancel all shares repurchased this year. As of August 11th, 2025, the company had canceled more than 6.2 million ADS. We will consistently place shareholders' interest at the core of our capital allocation decisions and continuously refine our shareholder returns strategy to generate long-term value for our shareholders. Overall, Our second quarter performance, once again, affirmed Yella's strategic effectiveness and the media market's vast potential. We are steadily compounding our advantages in this compelling market where we've cultivated deep roots over many years. Going forward, Yella Group will continue to unlock monetization opportunities through a diversified gaming lineup while working alongside partners to foster a sustainable digital ecosystem. We are excited to have your support as we help propel MENA's transformation from a digital hotspot into a true global innovation center. Now I will turn this call over to our president, Mr. Safi Ismail, for a closer look at our recent developments.

Hello everyone. Thanks for joining us today. Let's take a closer look at our second quarter operations and our product performance. First, I would like to share our operational and product performance highlights in the second quarter. We increased our group's average monthly active users by 8.8% year over year to 42.4 million. In light of the sharp MAU increase during Ramadan in the first quarter, we adjusted our user acquisition strategy in quarter two, allocating more resources to acquiring and returning high engagement, high quality users, and reducing spending on channels, demonstrating less efficient conversion metrics. This approach will allow us to scale our community while ensuring a vibrant and engaged user base. As a result, the group delivered year-over-year and sequential revenue growth this quarter, despite a short-term sequential dip in MAU. Starting next quarter, we expect MAU growth to normalize at 2% to 3% quarter over quarter, with full-year MAU growth projected at around 10% year over year, as we remain focused on consistent user-based expansion. Next, I would like to delve into the meaningful strides we made in the second quarter across product operations and brand building. During the quarter, we conducted several strategically designed campaigns and fostered in-depth brand partnerships, further solidifying our market position and driving stronger user retention. One highlight was this quarter's co-branded campaign between Yalla Ludo and the Dubai Department of Economy and Tourism. We embedded Dubai's culture icons and signature landmarks into gameplay and mission design, delighting users with a richly immersive experience. Its dynamic blend of Yalla Ludo's entertaining gameplay and Dubai's tourism appeal garnered highly positive user feedback and sparked substantial organic social media buzz, significantly boosting in-game activity. this quarter also marked the successful conclusion of yalla's ninth anniversary celebration we launched a platform-wide event series featuring exclusive missions and generous rewards mechanisms user enthusiasts reach an all-time high with gold coin consumption reaching a new record for this event series this event's performance demonstrated the strongly affinity users have for our platform while also reframing our event design capabilities and the vibrancy of our online community. We also leveraged our strengths in event design and user engagement to deepen our corporate responsibility efforts. During the Needle Adha 2025, we designed public welfare initiatives with far-reaching impact, inviting users to contribute by participating in online events to accumulate goodwill credits. As a gesture reflecting the event's shared goodwill, Yalla Group donated to the UNICEF MENA Regional Office on behalf of all users. We were delighted to see this campaign enrich users' digital experience while encouraging participation in meaningful social good. On a related note, we released our 2024 ESG report this quarter, marking another key milestone in our journey toward greater transparency and and standardization in sustainable development. The report systematically outlines Yalla Group's vision, practices, and commitments in driving sustainable growth, fulfilling social responsibilities, and strengthening corporate governance, highlighting our concrete actions and positive outcomes in area including promoting digital inclusion, safeguarding user well-being, supporting community development, and advancing responsible governance. In short, we drove notable gains in user engagement and commercial value. across our core businesses during the second quarter of 2025. Looking ahead, we remain committed to driving product innovation, deepening strategic partnerships, and actively fulfilling our corporate social responsibilities as we advance with firm convictions toward our vision of becoming the most popular platform for online social networking and entertainment activities in MENA. With that, I will now turn the call Over to our CFO, Karen, who will discuss our key financial and operational results.

Thank you, Saifi, and hello, everyone. Thank you for joining us today. Excellent execution across our operations drove this quarter's strong results, underscored by better-than-expected revenues and enhanced profitability. Our revenue system, their healthy growth trajectory up 4.1% year-over-year, We also continue to execute disciplined cost management and improve our overall efficiency, boosting our net income by 16.4% year-over-year to $36.5 million, with net margin expanding by 4.6 percentage points year-over-year to 43.2%. Boistered by this success, we continue to accelerate our expanded share buyback program. We remain committed to driving product innovation, optimizing operations, and elevating shareholder value as we advance toward our vision of becoming the most popular platform for online social networking and entertainment activities in MENA. Let's move on to our detailed financials for the second quarter of 2025. Our revenues were $84.6 million in the second quarter of 2025, a 4.1% increase from $81.2 million in the same period last year. The increase was primarily driven by our growing user base and enhanced monetization capability. Turning to our costs and expenses, Our total costs and expenses were $53.9 million in the second quarter of 2025, a 4.6% increase from $51.6 million in the same period last year. Our cost of revenues was $27.9 million in the second quarter of 2025, a 3.7% decrease from $29 million in the same period last year, primarily due to lower commission fees paid to third-party payment platforms as a result of diversified payment channels and the lower share-based compensation expenses recognized in the second quarter of 2025. Cost of revenues as percentage of total revenues decreased from 33% in the second quarter of 2025 from 35.7% in the same period last year. Our selling and marketing expenses were $8.7 million in the second quarter of 2025, a 2% increase from $8.5 million in the same period last year. primarily due to higher advertising and market promotion expenses attributable to our continued user acquisition efforts and expanding product portfolio. Selling and marketing expenses as percentage of total revenue decreased to 10.2% in the second quarter of 2025 from 10.5% in the same period last year. Our general and administrative expenses were $9 million in the second quarter of 2025, an 18.8% increase from $7.6 million in the same period last year, primarily due to an increase in incentive compensation and higher exchange loss. General and administrative expenses as a percentage of total revenues increased to 10.8% in the second $28.3 million in the second quarter of 2025, a 28.6% increase from $6.5 million in the same period of last year, primarily due to an increase in salaries and benefits for our technology and product development staff, driven by an increase in their headcount to support the development of new businesses and expansion of our product portfolio. Technology and product development expenses as percentage of total revenues increased to 9.9% in the second quarter of 2025 from 8% in the same period last year. As such, our operating income was US$30.9 million in the second quarter of 2025, a 3.4% increase from US$29.6 million in the same period last year. Interest income was $6.8 million in the second quarter of 2025, compared with $7.1 million in the same period last year. Income tax expense was $1.5 million in the second quarter of 2025, compared with $5.8 million in the same period last year, primarily due to a decrease in UAE corporate tax. As a result of foregoing, our net income was $36.5 million in the second quarter of 2025, a 16.4% increase from $31.4 million in the same period last year. And our non-GAAP net income in the second quarter of 2025 was $39.4 million, an 11.7% increase from $35.2 million in the same period last year. Moving to our liquidity and capital resources, our cash position remains solid and healthy. As of June 30, 2025, we had cash and cash equivalents, restricted cash, term deposits, and short-term investments of U.S. $704.1 million compared with $656.3 of December 31, 2024. We continue to return values to our share repurchase program, pursuant to the company's current share repurchase program beginning on May 21, 2021, with an extended expectation date of May 21, 2026 as of June 30, 2025. the company has cumulatively completed cash repurchases in the open market of 13,535,437 ADS, or Class A Ordinary Shares, for an aggregate amount of approximately $90.4 million since the inception of the current share repurchase program. The aggregate value of ADS, or Class A Ordinary Shares, that remain available for purchase under the current share repurchase program was 59.6 million US dollars as of June 30, 2025. In addition, the company has canceled 6,230,299 ADS or Class A ordinary shares as of August 11, 2025. Moving to our outlook. For the third quarter of 2025, we expect our revenues to be between $78 million and $85 million. The bulk outlook is based on the current market conditions and reflects company's management's current and preliminary estimates of the market and operating conditions and customer demand, which are all subject to change. In the interest of time, please refer to our earnings price release for further details on the second quarter 2025 financial results. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

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