Good morning and good afternoon, ladies and gentlemen. Thank you for standing by for Yalla 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 turn the call over to Ms. Kerry Gao, Director of IR of the company. Please go ahead, ma'am.

Hello, everyone, and welcome to Yalla'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 newswire services. 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 earning release and our registration statements filed with the SEC. Yalla does not assume any obligation to update any forward-looking statements, except as required by law. Please also note that Yalla's earnings press release and this conference call include discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Yalla's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Today, you'll hear from Mr. Tao Yang, our Chairman and Chief Executive Officer, who will provide an overview of our recent achievements and growth strategies. He'll be followed by Mr. Saifi Ismail, the company's President, who will give a brief review of our recent developments. Ms. 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'll open up the call to questions. Our Chief Operating Officer, Mr. Jeff Xu will join the call for our Q&A 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.

Thank you, Kerry, and thank you everyone for joining our 2021 third quarter earnings conference call. It has been a year since Yalla’s NYSE listing. Before updating you on our business progress during this quarter, I would like to take a moment to elaborate on our mission, vision and strategy. Yalla was the first UAE technology unicorn to be listed in the United States. As a company rooted in the Middle East and in 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 the region’s per-individual average time spent on apps is also considered the highest globally. Demand for online social networking and entertainment services is high among MENA users, but historically there have been few digital products reflecting local values or customized for local users’ specific needs. When we drafted the prospectus 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 remains unchanged. We hope to realize this vision within the next 10 years and will employ two important strategies to achieve our goals. First, as we continue to develop Yalla’s ecosystem, we will diversify our business and revenue streams and flexibly develop our business and products through investment, collaboration and other means. Second, Yalla’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, targeted and trendy online services. Yalla is developing rapidly while also…

Thanks Tao. Hello, everyone. Thanks for joining us today. In addition to the accomplishments Tao shared, we have made impressive progress with our new product, 101 Okey, remained one of the most downloaded app 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 experiences. For example, in quarter three we released a new version of Yalla Baloot, 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 Parchis, the South American version of our Ludo app, also performed impressively. By the end of quarter three, Parchis’ contributed 786,000 of Yalla Group’s monthly active users. Parchis is showing outstanding user stickiness, and our next step will be to cement our monetization strategy and begin to boost Parchis’ monetization capabilities, taking South American cultural 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 tech company. The UAE government’s recognition of our work inspires an even greater commitment to ensuring that our products and services exceed 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…

Thank you, Saifi. Hello, everyone. Thank you for joining us. We recorded 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 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 high 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 Yalla Group’s user base and enhancements to Yalla 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. Yalla’s MAUs increased by 72.2% to $9.5 million in the third quarter of 2021 from $5.5 million in the same period of last year; and Yalla Ludo’s MAUs increased by 79% to $15.7 million in the third quarter of 2021 from $8.8 million in the same period of last year. And Yalla Parchis’ 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…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] 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 Shiqi Ge with CICC. Please go ahead.

Thanks management for taking my question, and congrats on your strong quarter. So I have two questions. The first question is about YallaChat. So how will you differentiate YallaChat from other IM products? And how were you initiate the product with the 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.

Hi, good morning, Shiqi. Thank you for that question. I'll take the first question. Our YallaChat version 0.2 can fulfill users' most basic need for IM product. As mentioned earlier, this new version will enhance app foundation and improved the product systems. This helps provide users with 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 YallaChat with seed users later, we have a significant advantage here that we can leverage the Yalla community over the past five years. We have built our own community with over 20 million loyal users. This is an ideal environment from which to introduce YallaChat. So when we think YallaChat 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'll hand over to our CFO, Karen.

Thanks, Tao. Thanks, Shiqi. Thank you for your question. About the margins. I think that every company needs to consider and prioritize different operation metrics at different stages in its growth. For Yalla Group, we continually strive to optimize our monetization model. It's in our DNA. 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 company 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 marketing efforts, investing R&D capabilities, continuing to expand our product portfolio, and growing our headcounts with right talent. 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 developed, robust ecosystem and a more vibrant, engaged community, which will in turn drive the long term growth. Currently, our net margin is about 45%. So we estimate that with just a 10% point fluctuation we 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 said, I believe, compared with our peers, we will be able to maintain our margins at a very competitive level. Hope this answer your questions. Thank you.

Sure, thanks management.

The next question comes from Kaifang Jia with CITIC. Please go ahead.

Hi, management. Thanks for taking my question. I have two questions. The first is about as the new product. So can management just share some updates about YallaChat and any color about the monetization of the new products? The second is that for the first quarter and 2022, we will be more positive on user growth, and just wondering the strategic difference between South America and MENA. Thank you.

Thank you, Kaifang. Thanks for your question. I will take the first question, and then our CEO Jeff will answer about the user group. Just as I answer Shiqi for the last question, the monetization will depends 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 production 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 answer your question.

Hi, Kaifang. So I will be answering your second question regarding the user growth and 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 yet is different from the MENA market for sure. We need to consider many region-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, Kaifang.

Thank you. That's all.

The next question comes from Yulin Zhong with Haitong International. Please go ahead.

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 adding live streaming hard-core games? And if you have any, could you elaborate a little bit about your new monetization plan? And when should we expect this new initiatives to contribute to revenue? Thank you.

Okay. Hi, Yulin, this is Yang. This is a topic we have been active discussing internally with our team. We have looked into and examined possibilities in advertising ecommerce, and others. And among all of these options, we believe at this stage gaming is the next area to develop as a monetization channel. Thank you.

Thanks.

The next question comes from Thomas Shen with Nomura. Please go ahead.

Hi, good morning, management. This is Thomas Shen from Nomura. I have a question on our user acquisition costs as we have seen some peers adjusting their overseas marketing strategy. Could the management share more color on the trend of our user acquisition cost? Thank you.

Hi, Thomas. I'll be answering this question. So for the user acquisition cost, we believe that you will gradually trend upwards. That's for sure. And that's true not just for Yalla 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 costs at a competitive level among all the peers. Thank you.

Thank you.

The next question comes from Yuchen Yang with TF Securities. Please go ahead.

Hi, management. Thanks for taking my question. And congratulations on the strong results for the quarter. So could you please just share your plan in 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 Yalla's advantage and how to maintain your leading position in the MENA market? Thank you.

Thank you, Yuchen, and good morning. To answer your questions, as the first one about the game, our previous experience are more related to casual game. So we'll be cautious as we move into the realm of heavy game. At this stage, we plan to collaborate with external studios that have high quality content assets 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 process. So we don't expect to see immediate jump in our R&D expenses related to heavy games. And about the second question, the competition, yes, there are increasing number of voice-centric social apps available in the market now. But what we want to emphasize is that Yalla, was the first voice-centric social networking, entertainment application in the MENA market. And for the past five years, we have always been the largest in the region. And we're always growing and innovating. Two years ago, we launched Yalla Ludo in the market. And at that time, we were the first company to combine casual game and chatting together. And now, Yalla Ludo has become the number one board game in MENA, and leads the trend in the market. Yet, more and more companies are trying to replicate the success of Yalla and Yalla Ludo. But so far, we haven't seen any that can even come close to challenging our position in the market. Yalla 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 users. We believe the metaverse concept opens the door to new and exciting potential for chatting to Yalla. We will continue to invest in our R&D, encourage innovation among our team. We would have our team with U.S. patent and better prepare ourselves for future opportunities. Another thing I would love to mention, if we look at Yalla Group's current ecosystem, we now have a more diversified product portfolio, extending beyond voice-centric social or entertainment app. On our pipeline, we have casual games, a heavy game, distribution, business, and messenger products product and metaverse social app, and we may also look into other verticals with good potential. What I'm trying to say is that Yalla Group is not going to only focus on the voice 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.

As there are no further questions, I would like to turn the conference back over to Ms. Kerry Gao for any closing remarks.

Thank you once again for joining us today. We look forward to speaking with you in the last quarter. If you have any further questions, please feel free to contact Yalla's investor relations through the contact information provided on our website, or The Piacente Group Investor Relations. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.