Good morning and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group Limited's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After managements’ prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. I would like to turn the conference over to your host today, Ms. Kerry Gao, IR management of the Company. Please go ahead.

Hello, everyone, and welcome to Yalla's Third Quarter 2023 Earnings Conference Call. We released our earnings press release earlier today, and the release 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. 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 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 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 Company's 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. Our COO, Jeff Xu, will also join the Q&A section. With that said, I'd now like to turn the call over to our Chairman and Chief Executive Officer, Mr. Tao Yang. Please go ahead, sir.

Thank you, Kerry. Thank you, everyone, for joining our third quarter 2023 earnings conference call. We are pleased to report that we achieved strong third quarter results. Our third quarter revenues reached an all-time high of $85.2 million, supporting the upper end of our guidance, while year-over-year revenue growth from gaming services exceeded 30% once again. Our cost efficiency initiatives continued to yield positive outcomes. And as a result, net income increased by 44% year-over-year to $35.2 million, and net margin further improved to 41.4%. Our robust financial performance reflects excellent execution of our effective high-quality development strategy. In the third quarter, we continued to refine our operational processes, enhance flagship applications gamification, improve our gaming mechanics and optimize our user acquisition strategies. These efforts have empowered us to build a more engaged community of users who exhibit high willingness to spend on our content and services. Supported by our solid business fundamentals and healthy cash position, we remain proud to capture new business opportunities and fulfill MENA users' evolving online social networking and entertainment needs in the era of digitalization. As we have discussed on our last few calls, the MENA region is actively pursuing new initiatives to drive economic growth, and the digital transformation here continues to advance rapidly. However, our region's exciting economic development is not the only asset drawing businesses and investors to MENA. Throughout its history, the Middle East has been an important hub for cultural and commercial exchanges between the East and West. Amid today's changing dynamics across the global landscape, the region is currently gaining increasing strategic importance. We have observed a mounting number of outstanding business considering MENA in their company's next important growth opportunities this year. A testament to the region's unique synergies with both Eastern and Western economies as well…

Hello, everyone, and thanks for joining us today. Let's take a closer look at our third quarter operations and our product performance. We delivered another robust quarter results as our efforts to improve the unification of our products continue to bear fruit. As Tao mentioned, our enhancement level have led to increased user engagement across our platform with average monthly active users rising by 13.6 percentage year-over-year to 35.1 million. Our high-value users exhibited great willingness to spend on those enhanced gamification features, driving ARPU up to $7.35 in the third quarter from $6.89 in the same period of last year. On a related note, one of our third quarter adjustments to our game mechanism was aimed at boosting overall user engagement and delivering better user experiences. This resulted in lower frequency of certain low spend consumption on the platform, which in turn led to a slight decrease of 2.6% in our total number of paying users. We are still fine-tuning these adjustments as we seek the right balance, and as such, we expect the fluctuation in paying users will be temporary. We are closely monitoring the impact of this adjustment and will adapt accordingly. For our flagship application, Yalla, we continue to improve gaming features and rolled out a series of operational activity, including an Islamic New Year event and National Day events across several countries in MENA, in conjunction with local festivals to enhance user engagement. Activities like these demonstrate Yalla's commitment to user satisfaction and strengthen the sense of community on our platform. With respect to Yalla Ludo, we launched a number of operational events, including an Islamic New Year event and a mystery store opening event. We also continue to improve the gamification of the app, which drove a significant increase in consumption compared with the…

Thank you, Saifi. Hello, everyone. Thank you for joining us today. We delivered strong results for the third quarter of 2023, highlighted by our all-time high revenues and impressive net margin expansion. Our relentless efforts to streamline costs as well as our enhanced ROI-based marketing strategy continued to yield positive outcomes, enabling us to elevate our overall efficiency. In addition, we continue to strategically leverage high interest rates to achieve higher returns. As a result, our net margin rose to 41.4% and non-GAAP net margin rose to 44.9%. As we head into our fourth quarter, we will continue to execute our high-quality growth strategy with focus on efficiency and profitability enhancement. We believe our solid fundamentals and strong cash position will support us in capturing future opportunities. As always, we remain dedicated to creating sustainable value for our shareholders in the long run. Now let's move on to our detailed financials for the third quarter of 2023. Our revenues were $85.2 million in the third quarter of 2023, a 6.4% increase from $80.1 million in the third quarter of last year. The increase was primarily driven by our broadening of our user base and our enhanced monetization capability. Our solid revenue growth was also partially attributable to a significant increase in ARPU, which grew from $6.89 in the third quarter of 2022 to $7.35 in the third quarter of 2023. Now let's take a look at our costs and expenses. Our cost -- our total cost and expenses were $52.8 million in third quarter of 2023, a 5% decrease from $55.6 million in the same period of last year. Our cost of revenues decreased by 6.1% to $27.8 million in the third quarter of 2023, down from $29.6 million in the same period of last year. Cost of revenues as…

[Operator Instructions] Our first question comes from Xueqing Zhang at CICC.

Congratulations on the strong quarter. I have two. The first one is about -- we have seen a strong performance by Yalla and Yalla Ludo this year. So how should we think about the growth potential of these two flagship products in the future? And the second one is about financial outlook. You have recorded all-time high revenues and strong profit margin this quarter. So can management share more color on the revenue growth and net profit margin trend next year?

Thank you for the question. I will take the first one, and our CFO, Karen, will take the second one. Regarding our flagship applications, Yalla and Yalla Ludo, we believe our strategies have proven successful over the past seven years. Yalla and Yalla Ludo now have impressive levels of influence among their users who have shown considerable loyalty to the platform, and we anticipate both products will enjoy especially long life cycles. Another aspect I would like to -- love to emphasize is that we -- our efforts to invest on quality growth effectively support our platform's development and monetization capability. Looking at 2024, we will continue to work on product iteration and explore more new features to serve users' evolving needs. And we are confident that Yalla and Yalla Ludo can at least maintain performances similar to this year. Thank you.

Xueqing, thank you for your question. And in terms of revenue growth for the next year, if we consider our current businesses, we are confident that in 2024, our revenue will maintain similar levels of -- as 2023 while we progress with expanding our business and exploring new growth opportunities. On the other hand, as we have mentioned many times, MENA has now become the next destination for many leading companies for explore growth opportunities. We will keep monitoring this trend for providing partnership and acquisition opportunities. All these potential contributions are not included in the group's guidance I have just provided. We will update our guidance later if necessary. In terms of margin, taking the potential investments in new products into account, an annual margin of 35%, I think, is fair. This year, we will continue to implement measures through dedicated cost control. Across, each quarter's performance may vary depending on how and when we invest in different products. Thank you. Thank you for your question again.

The next question comes from Chenghao Li at CICC.

Congratulations on a solid quarter. I have some questions related to the gaming business. First, could management share about how that the Company evaluates the performance of the two recently launched mid and hardcore games? And could the management share more color about the game pipeline and launch schedule in the future? And lastly, are there any updates on the Company's strategy for the gaming business?

Chenghao, thank you very much for your questions. As I shared earlier in the management's remarks section, if we look at the rankings, both hardcore games were more top 10 in their categories in certain Gulf countries, although compared with our flagship applications, they are still not making a substantial contribution to our group's revenue. Through this process, we have gained the important experience regarding our operation and cooperation strategies, and we see immense room for growth in the midcore and hardcore games business. We are committed to developing our midcore and hardcore games, and we'll continue to invest in this sector. In terms of the game pipeline, we have several new products, and we will disclose more details later after we receive further feedback on the beta versions. In terms of strategy, we expect to accelerate the launch of our new games in the coming year. Besides developing the games in-house, we will also continue to actively communicate with excellent gaming studios and production teams across the industry. And we look forward to considering more potential partnerships. Thank you, Chenghao.

The next question comes from Kaifang Jia at Citic.

Congratulations on the strong quarter. My question is, how do we view the recent competitive trends in the Middle East market?

Kaifang, thank you very much. This is Saifi. As we highlighted at our management remarks, MENA's macro environment is very favorable and is attracting now more and more resources, including businesses, talent and investments, to this market. One significant aspect we have noticed is that since the second half of last year, we have been invited more frequently to discuss opportunities in the MENA market with our industry peers. More conversations are happening, and through this process, we are able to learn more from each party's insights and intentions on what they have and what they need at this point and discuss ways also to collaborate that are naturally beneficial. With all these creative minds and resources, it's not hard to see that the market is going to go from strength to strength in the next three to five years. In terms of the competitive landscape, the most significant change over the last two years is still TikTok. The rest of the major players in the MENA market have been in the region for many years. If we look at the gaming sector, some mobile gaming apps from China are performing very well in MENA. However, what I would love to share is that the traffic acquisition expense now in the MENA market is much more expensive than what we bid seven years ago when we first entered the market. So for some small-sized companies, that could be a challenge if they plan to explore this market on their own. I want to reiterate also that competition is never a bad thing. It inspires us to build better and serve our users, research new technologies and industry trends and drive also collaboration and innovation. As the leading player in this region, we see this unfolding development as an opportunity. We are taking proactive steps to cement our leadership position and remain confident in our capabilities after all these years. Thank you.

The next question comes from Lincoln Kong at Goldman Sachs.

So I have two questions. First one is, how does the Company sort of foresee the balance between maintaining high profitability and continued business investment, especially in the new business? And second one, can management also provide some insights in terms of the development of short plays in the overseas market? So does Yalla have strategy or plans in this area either through distribution or asset -- platform for traffic acquisition?

Thank you, Lincoln. This is Karen, and I will take the first question about the margin and leave the second question to Saifi. As we just mentioned for the next year, we can still keep our net margin at 35% or above, a very decent level. However, the Company is still actively looking for some growth opportunities. We maintain a prudent approach to investing to focus on pursuing high-quality investments. And of course, if there are good opportunities that will benefit the Company's long-term development, we are also ready to increase our investment to seize these opportunities. Our strong cash position supports us to exploring more opportunities and unleashing our growth potential. I hope I can help you. Thank you.

Lincoln, for your second question, thank you very much for your question. Regarding short plays, we observed that the business model is becoming very mature in China, and we see potential there. If we look at the global market, for example, the United States and Southeast Asia are the most popular destination for short plays. We saw some products already exploring global opportunities. But compared with China, these markets are still at very early stage. Concerning the MENA region, short plays are also new for users, and it takes time to educate the market. Furthermore, to better serve users' needs, I believe content tailored to Arabic culture is very essential. We are conducting research to evaluate the market and also talking to some production companies. If Yalla decides to move into this sector, I believe localization might be a better way to capitalize on our extensive understanding of MENA's local culture and market insights. Thank you.

The next question comes from [Rachel Go] from Nomura.

Congratulate on a solid quarter. And my question is like given the Company has a very strong cash position that the Company has made plans for [indiscernible].

Rachel, thank you very much for your question. Cash strongly supports us exploration of new opportunities to drive further growth. As I stated, among the global markets, MENA is popular, and we are seeing emerging acquisitions and investment opportunities. So having cash reserves is strategically important for our company. In addition, we are actively carrying out our share repurchase program. In the third quarter, we repurchased approximately 1.7 million shares, totaling around $8.5 million. This reflects our confidence in our share price, and we will continue to conduct our repurchase program and return value to shareholders. Thank you.

The next question comes from Natalie Wu with Haitong International.

Just wondering, could management provide some color on the competition faced by Yalla and Yalla Ludo in TikTok and Jaco?

Natalie, thank you very much for the question. So as we mentioned earlier, more and more global companies are now looking for opportunities in the MENA region. For example, TikTok, who moved fast and is performing very well in the market so far. In terms of competition, TikTok has a greater impact on live streaming or short video products. If you look at third-party data, some of them are losing their market share because of TikTok. Of course, all products are competing for users' time and attention. However, taking a closer look at our performance over the past two years, I would say our flagship applications have done a good job. We are still generating record-high revenues from time to time probably because our product strategy focus on localization. There are always genuine needs for Arabic users who have shown stronger loyalty to our product platform. We are very confident in the vitality of our two flagship applications. And as Mr. Tao Yang just mentioned, I expect they will enjoy a long life cycle. In terms of Jaco, it's also a live streaming platform. I don't think we compete directly. There are many live streaming platforms that have entered the MENA market in recent years, and as we just discussed, TikTok is the biggest one. Live streaming platforms face more direct competition with each other. Thank you.

As there are no further questions now, I would like to turn the call back over to management for closing remarks.

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 or Piacente Financial Communications. Both parties' contact information is available in today's press release as well as on our company website.

This concludes this conference call. You may now disconnect your lines.