Good morning and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group Limited Third Quarter 2022 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 will turn the call over to your speaker host today, Ms. Kerry Gao, IR Director for the company. Please go ahead, ma'am.

Hello, everyone, and welcome to Yalla's third quarter 2022 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 US 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 this and other risks and uncertainties is included in our earnings release and our annual report 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 a discussion of unaudited GAAP financial measures, 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 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. Jeff Xu, our Chief Operating Officer, 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 our financial outlook. Following management's prepared remarks, we will open up the call to questions. Mr. Saifi Ismail, the company’s President is unavailable for today’s call due to a personal emergency. 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 third quarter 2022 earnings conference call. We are pleased to have delivered another strong quarter with record revenue of US$80.1 million, exceeding the higher end of our guidance by 6.8%. This also represents a third consecutive quarter of record-breaking revenue for the company and underscores our unique capability in driving business growth at a solid pace, while continuing to develop our integrated product ecosystem. Such robust quarterly results are underpinned by our continuous efforts to refine our operational processes, optimize user acquisitions and further drive our product monetization. Together, these actions have effectively improved our user experience, thereby further boosting Yalla's and Yalla Ludo engagement and users willingness to pay on our platform. Also, our impressive quarterly results are a testament to our core strategy, as well as our operational improvements. As we further deepen our expertise and broaden our product portfolio in MENA, we are confident in our future growth potential. Now, let's take a closer look at our new product update, leveraging our extensive industry-leading experience in social and online entertainment in MENA, we established Yalla Game to explore the mid-core hard-core game distribution business as a complement to our casual game portfolio. For this quarter, Yalla Game has taken a crucial step. We are excited to share with you that after several months of collaboration with the gaming studio we invested in, we have launched the beta version of our first hard-core mobile game, Merge Kingdom in a lot of MENA country. We will soon begin to get our user feedback and actively fine tune the product through the beta stage, paving the way for full-on promotion. We will share more details and metrics with you on our next call. The second hard-core game that we plan…

Hello, everyone. Thanks for joining us today. First of all, I'm pleased to tell you that Yalla was recently invited to attend the 6th Future Investment Initiative in Riyadh, titled Investing in Humanity, enabling a new global order hosted by the Future Investment Initiative Institute. The event brought together the world's foremost CEOs, policymakers, investors and entrepreneurs to discuss and shape the future of international investments and the global economy. Yalla was honored to participate as a featured speaker on the From Seed to Unicorn Empowering Youth Entrepreneurship panel, where we discussed the intersection of innovation, entrepreneurship, youth and talent and shared Yalla’s story with the local and international investment community. Yalla group is proud to contribute to such events throughout MENA, helping to promote our region's talent, potential and unique local perspective to broader audience. demonstrating our commitment to promoting a healthy and a well-managed sector environment that participate the development of local digital economies. Next, let's turn to our operations as well as our product performance in this quarter, our team's ongoing efforts to refine our content offerings and user operations, further bolstered user engagement as well as our paying ratio and advanced our monetization capability. As a result, we are pleased to report another robust quarter with Yalla Group total revenue of US$80.1 million, beating the higher end of the company's guidance. In addition, our monthly active users increased 19.1% year-over-year, reaching $30.9 million. Yalla Group paying users also increased to $11.5 million. Now a closer look at our casual game portfolio. Yalla Parchis ranked in the top five in terms of revenue in the Board game category in 10 countries, including Columbia, Mexico, Chile and Spain. During Q3, we hosted a number of targeted events to encourage user activity on the platform. For example, our tomato…

Thank you, Jeff. Hello, everyone. Thank you for joining us. We delivered another outstanding set of financial results in the third quarter of 2022 with group revenues reaching a record US$80.1 million, up 12.3% year-over-year. Thanks to our enhanced gamification and entertainment features, we also saw robust growth in paying users, driving our group's paying ratio to 37.4%. Furthermore, we maintained healthy profitability with a GAAP net margin of 30.5%. And excluding share-based compensation, a non-GAAP net margin of 36.7% all the while investing in innovation across our portfolio and strategically boosting in our marketing spend. Going forward, we will continue to expand and integrate our Yalla ecosystem, optimizing operational efficiency and explore new monetization avenues to propel our long-term growth and support sustainable returns to shareholders. Now, I would like to walk you through our detailed financials for the third quarter of 2022. Our revenues were US$8.1 million in the third quarter of 2022, a 12.3% increase from US$71.3 million in the same period last year. The increase was primarily driven by the broadening of Yalla Group's user base and enhancement to Yalla Group's monetization capabilities. Our average MAUs increased by 19.1% from 25.9 million in the third quarter of 2021 to 30.9 million in the third quarter of 2022. Now, let's look at our costs and expenses. Our cost of revenues was US$29.6 million in the third quarter of 2022, a 26.3% increase from US$23.4 million in the same period last year, primarily due to an increase in technical service fees resulting from the expansion of our product portfolio and the increase in salaries and benefits resulting from the expansion of our operation and the maintenance team. Cost of revenues as a percentage of our total revenues increased from 32.8% in the third quarter of 2021 to 36.9%…

Thank you. We'll now begin the question and answer section. [Operator Instructions] First question will be from Kaifang Jia of CITIC. Please go ahead.

Hi, management, can you hear me?

Yes.

Okay. Thanks for taking my question and I have two. The first is can management provide some details about new business like gaming and chatting, and will you have a monetization plan in the next year? And my second question is, how does the management see the margin and OpEx moving over the next several quarters?

Hey, good morning. Thank you very much, Kaifang. Good morning. I will take the first question and I think the second question will be taken by our CFO. Our new instant message product YallaChat reflects our observations respecting local MENA users social habit and new preferences. And we have continued to roll out various localized and entertaining features to fulfill users, diverse needs with the IM products. We launched a marketing campaign for YallaChat in November, and some of you may have already seen YallaChat ranked among the top three on the app store, download ranking in certain regions. We are excited about the strong performance. But it's still in a very early stage, and we will need more time to test in market. We strongly believe that a dedicated IM product with features customized for MENA users is the a necessity, and we will strive to achieve this goal. In the short run, or at least in 2023, we don't expect to start monetization on YallaChat. The focus for the product in this stage will still be expanding the user community. Our expectations for our gaming distribution business are different. Gaming does account for part of our revenue expectations for next year, but since we just recently launched the SLG game, it will take some time to collect user feedback and give an estimate on the scale of its revenue. We will share more details with you next quarter. Thank you. Karen will take the second question.

Thank you, Mr. Yang. Thank you very much, Kaifang. This is Karen. About the margin and the OpEx moving, I think that with the current pace of our development, the non-GAAP net margin can be maintained around 35% this year. However, since we just launched the marketing campaign for YallaChat in November, and we may need to invest more in sales and marketing during Q4. We will continue to adjust our campaign strategy for YallaChat according to the market feedback. Therefore, the budget for these campaigns is not a fixed number. It is subject to change. In past years, we focus on the development of our two successful flagship applications. And the year of 2022 is a year of -- for our adjustment as we aim to add more applications to our product portfolio. We have invested more to successfully complete this portfolio expansion with the goal of diversifying our future revenue streams and building Yalla into a larger Internet platform. During this process, some of our new products like YallaChat and the game distribution business are not contributing to our current revenue, because we still need to invest in their R&D and the sales and marketing. Giving all that, as we mentioned in the last quarter, I would say that, it's fair to expect our non-GAAP net margin to remain around 30% in next few quarters. The target remains unchanged, and we think this will significantly benefit the company's long-term goals. Thank you, Kaifang. I hope I answer your questions.

Thank you. That’s very helpful.

So operator, we're ready for the next question.

Thomas Shen, please go ahead with your questions, please.

Hi, good morning management. Thank you for taking my question. I have a multiple questions. The first one is could management elaborate more on the company's marketing strategies going forward? I also have another question on games, can management share more details on the game pipeline for next year? Thank you.

Thank you very much, Thomas Shen for your question. This is Jeff. You asked a very good question. So for the first question, the marketing strategy is an issue that our team thinks about and discussed constantly. First, I want to highlight again that the dynamic market environment is an important factor and we may adjust our marketing strategy accordingly anytime. For now, if you ask my view on next year's user acquisition plan, I would say the pace will be pretty similar to these years. We will maintain our disciplined sales and marketing strategy and focus on ROI of our spending. The second question regarding the game pipeline. Beyond the SLG game and the RPG game that we are working on, we have also started to explore mid-core games. We may look for some good studios to collaborate with or we may also invest in some, as we did previously with our hardcore games. We are still in an early stage. So I will share with you more details in the future. Thank you for your question again.

Thank you. The next question will be from Edward Wang of Credit Suisse. Please go ahead.

Hi management, appreciate for the presentation and congratulations on the robust quarterly results. So I would like to follow up on questions about YallaChat. YallaChat has launched several mini program functions in the past two or two quarters. What will be the positioning of mini programs in the future? Thank you.

Hi Edward, good morning, and thank you very much for your questions. Yes, we continue to roll out mini programs to provide diverse functions to fulfill our users' various needs.. We see significant potential in mini programs. It is a flexible and efficient way to expand the services that we can provide with our YallaChat. Our team rolled out mini social games like hop up and then the Athan feature and now the Yalla Ludo mini program. It's still in the early stage, but I think there is a lot more we can do with mini program. We will keep you posted on the progress. Thank you.

Thanks. That's helped a lot.

Thank you

Thank you. The next question will be from Xueqing Zhang of CICC. Please go ahead.

Good morning, gentlemen. Thanks for taking my question. I have two questions. The first one is that the company's revenue in the third quarter, this company's guidance as the market expectation. So just wondering, what's the driver is driving by Yalla Luda and it's dominated by paying user or by ARPU? And my second question is related to Yalla Parchis. Just to mention in your prepared remarks, a number of Parchis events you have built for Parchis user community. So, can management share with us the current user level and how we improve its monetization capabilities? Thank you.

Good morning, Xueqing. Thank you for your two questions. Our products have been making good progress over the past quarter. As you can see in Q3, the growth was mainly driven by the increase in paying users. But it's hard to determine whether paying user or ARPU will determine growth in the future. We dynamically adapt our operational strategy and sales and marketing strategy according to the market situation and user feedback. So it varies every quarter. And for Parchis, so we contently only disclose and MAUs at group level. But in general, our user acquisition strategy focus more on the ROI of our investments in sales and marketing. Our group MAU growth rate remains at around 3% quarter-over-quarter. And in terms of monetization, purchase performance is encouraging. And the product is now generating not only revenue, but also gross profit. That's excellent sign. And we are doing more work on boosting the monetization of this product. We look forward to sharing more details with you in next quarter. Thank you. Thank you, Xueqing.

Thank you. Thank you, Karen.

Thank you. Our next question will be from Chenghao Li of CICC. Please go ahead.

Hi, management for taking my question and congratulations on another solid quarter. I have two questions. Could management please share some color or change on the competitive landscape in the MENA region. And secondly, we can see the paying ratio continues to improve in recent quarters. So how should we expect the Yalla’s paying ratio and ARPU to change in the future?

Thank you, Chenghao, and good morning. And we mentioned last quarter, the MENA emerging market with great potential. We started our business here six years ago. And as a leading company in the region, we have achieved certain milestones that have been also recognized by the industry. In recent years, many strong Internet peers have entered the market, such as Bytedance, Bigo and some mobile gaming apps. It's exciting. And it's also a testament to region's market potential, Thanks to all of these owners' growing businesses in MENA, more and more investors are now studying this market, which is very important for the industry's prosperity. and I want to reiterate that competition is never bad; it inspires us to refine our product design learn from our users, study new technologies and industry trends and to drive innovation. As a leading player in this region, we will take proactive step to cement our position and remain confident in our capabilities after all these years. Thank you, Chenghao,

Thank you.

Thank you. The next question will from Yulin Zhong of Haitong International. Please go ahead.

Thank you. Thanks for taking my question. I have two questions. Number one, could you share more color on the macro impact in MENA area? And how could that impact your fundamentals going forward? And the number two, we saw very encouraging results in your refined operational strategy So could you elaborate more about your user metrics stream and operating strategy in the negative core products, such as Yalla and Yalla Chat? Thank you.

Good morning. Good morning, and I will take these two questions. Last quarter, we mentioned that MENA’s macro environment is improving compared to the previous year. COVID is easing and oil price are also rising. After another quarter, we are still not seeing big changes. I think consumers in MENA remains confident -- if we look at our product performance, we delivered another quarter of record high revenue. Our momentum is strong so far. Also, we are seeing government paying more attention to facilitating the development of the digital economy. Second, such as gaming, e-sports, web 3 are hot topic and are getting more attention and resources than before. I believe these are good signs. And about our user metrics and operation strategy in our products. Yalla Ludo our flagship applications. They are our group's main revenue contributors and their operations and development are significantly important to the company's performance every quarter for Q4 and next year. We will continue with our operational refinement strategy. In terms of our user acquisition strategy, as just mentioned, the pace will be similar to the Yalla and Yalla Ludo will still play crucial roles in Yalla group development next year. Thank you, Yulin.

Thank you. Best of luck.

Thank you. The next question will be from Zemin Chen of Huafu Securities. Please go ahead.

Good morning, gentlemen. Thank you for good performance. I have a question about the traffic in our ecosystem and can management share how traffic is connected and coverage across the different apps. Thank you.

Hi. Thank you for your question. So actually, the conversion effectiveness between our apps is very encouraging. We are seeing promising feedback and data. Also, we think that the conversion possibly impact our users' long-term LTV, we built a product ecosystem that provides diverse services to fulfill MENA users' various online social networking and entertainment needs. When we decide to convert users from one app to another, usually, these two products represent different sectors and provide distinct services. largely facilitating the improvement of users of total LTV on the Yalla whole Platform. Thank you, hope I answered your question, well. Thank you.

Thank you.

Thank you. That concludes our prepared remarks. Our question-and-answer session is now over. There are no further questions. I'd now like to turn the call back over to management for their closing statements.

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 Yalla's Investor Relations through the contact information provided on our website or the Piacente Group Investor Relations.

The conference is now concluded. You may now disconnect. Thank you. Thank you.