Yalla Group Limited Q1 2023 Earnings Call
Speaker 2: This time all participants are in a listen only mode. After management's prepared remarks there will be a question and answer session.
Speaker 2: Today's conference call is being recorded.
Speaker 2: Now I will turn the call over to your speaker host today, Mr Logan Yeh, Investor Relations Manager of the company. Please go ahead.
Speaker 3: Hello everyone and welcome to YALA's first quarter 2023 earnings conference call. We relieved our earnings earlier today and the release is now available on our IR website as well as on Newswire Services.
Speaker 3: 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 Security Litigation Reform Act of 1995.
Speaker 3: Forward-looking statements involve inherent risks and uncertainties.
Speaker 3: 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 earnest release and our annual report filled with the SEC.
Speaker 3: YALA does not assume any obligation to update any forward-looking statements, except as required by law.
Speaker 3: Please also note that YALA's earnings price release and this conference call, including a discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures.
Speaker 3: Yala's press release contains a reconciliation of the unlogited non-GAAP measures to the unlogged most directly comparable GAAP measures.
Speaker 3: 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 strategy. He will be followed by Mr. Saifee Ismail, the company's President.
Speaker 3: who will briefly review our recent business developments. Mrs. Karangu, our Chief Financial Officer, will then provide additional details on the company's financial results and discuss our financial outlook.
Speaker 3: Following management's prepared remarks, we will open the call to questions.
Speaker 3: 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.
Speaker 4: Thank you everyone for joining our first quarter of 2023 earnings conference call.
Speaker 4: We kicked off 2023 with a fully status operational and financial result in the first quarter, even with the impact from Lambda, which started a little earlier than usual this year on March 23rd.
Speaker 4: Our Q1 revenue still reached 73.5 million USD, falling into the upper end of our guidance, and once again demonstrating the remarkable strength of our flagship applications, Yalla and Yalla Luda. Our businesses continue to exhibit formidable stability.
Speaker 4: and vitality thanks to our consistent efforts to build out our community.
Speaker 4: and put out totally over the past seven years.
Speaker 4: with our solid fundamentals and robot cache position.
Speaker 4: Yella is also able to continuously invest in new products and workers to explore and tap digital opportunities across the MENA region.
Speaker 4: 2023.
Speaker 4: has ushered in fresh economic start among disparities around the globe.
Speaker 4: with new dynamics and growth, including investments worldwide.
Speaker 4: As we are reaching the ripple of digitalization, the Middle East is receiving increasing attention from the global technology and investment community.
Speaker 4: Meanwhile, countries throughout MENA are also working to showcase the region's vibrant energy and commitment to advancing the new era of development.
Speaker 4: Mina has long been renowned for its copious nature resources.
Speaker 4: As a result, traditional industries have long been recognized as the economic backbone of the region.
Speaker 4: Recently, we have seen a significant shift in the dynamic.
Speaker 4: as numerous countries across MENA have prioritized digital transformation as one of their most important national development strategies.
Speaker 4: Allocating capital and resources to support digital fields including gaming and media, among others.
Speaker 4: As Mina's largest online social networking and gaming company, Yella has been proactively preparing to see this emerging opportunity. To that end, we have identified two girls.
Speaker 4: engines for yellow group development in 2023.
Speaker 4: First, we will continue to invest in R&D and our self-developed products.
Speaker 4: building up our well-established user base and product popularity to amplify our value proposition among mini-markets.
Speaker 4: Second, we will explore collaboration with global Internet companies that are interested in NINA's emerging opportunities. By leveraging our deep local know-how and extensive operating capabilities, we are confident we can capitalize on global investments and achieve a better future.
Speaker 4: mutually beneficial collaboration.
Speaker 4: Now I'd like to share some important updates on Yalla Games' recent development.
Speaker 4: As we have mentioned previously, we established the yellow game.
Speaker 4: as a subsidiary to explore the mid-core and hardcore games present in Mina.
Speaker 4: We are thrilled to announce that Yellow Game has officially launched its first hardcore mobile game, a match-up league multiplayer online role-playing game.
Speaker 4: or MMORPG.
Speaker 4: entitled Age of Legends.
Speaker 4: Age of Legends is a self-developed game for which our team built a magical world and virtual characters rooted in Arabic culture and fairy tales.
Speaker 4: Each landscape features oasis, snow fields, desert and gold for users to explore. Leveraging our extensive experience in the midnight market, we will also consistently go out in in-game activities tailored to local hoses and other special events.
Speaker 4: to provide additional localized experiences to our users.
Speaker 4: We launched Age of Legends at the beginning of May in Turkey. There is a download available on Google Play for the first stage.
Speaker 4: The game will also be distributed to additional regions.
Speaker 4: and be made available at the store.
Speaker 4: in the near future. We will continue to monitor the age of legends.
Speaker 4: operating and financial performance and we will look forward to sharing more details with you on our next learning curve.
Speaker 4: Turning to our casual game portfolio, which includes Yella Patches, 101 OK Yella, and Yella Pollute, we continue to hone and upgrade our casual game products during the first corner.
Speaker 4: and VIP privileges to improve communication and provide more meaningful, entertaining experiences.
Speaker 4: We also continuously create and introduce themed events tailored to MENA's local culture, which improve users' engagement and retention.
Speaker 4: Thanks to this persistent endeavors, our casual games delivered outstanding performances in Q1. Both patches and 101 OKLS quarterly revenue were around 1 million USD.
Speaker 4: exemplifying our casual game portfolios monetization capabilities.
Speaker 4: We will continue to enhance this product and seek creative ways to increase air penetration in different countries across India.
Speaker 4: to sign up.
Speaker 4: As a mere aging grows rapidly...
Speaker 4: Countries throughout the region are showing their digital ambitions and striving to address opportunities and challenges on their digital transformation journey.
Speaker 4: as this transformation gathers in momentum.
Speaker 4: We are pleased to see Mina attracting investor interest not only because of its abundant capital and natural resources, but also due to its unique local market and digital-era businesses with great potential.
Speaker 4: with an increasing inflow of global talent.
Speaker 4: in flow of global talent. capital
Speaker 4: of global talent, capital, technology.
Speaker 4: and burning our ears into Mina.
Speaker 4: We anticipate an acceleration of the region's development.
Speaker 4: over the next five years.
Speaker 4: as a number one Mina-based online social networking and gaming company, we are fully dedicated to this market.
Speaker 4: and presented.
Speaker 4: holistic understanding of its culture, people, and distinctive alternatives.
Speaker 4: which will empower us to see the opportunities arising from the region's fiscal transformation.
Speaker 4: We will embrace the channel of development, shifting our investments in research and development to enhance our
Speaker 4: exercise in technology and explore new products and workforce while working with partners around the globe to participate in the local digital transformation
Speaker 4: Once again, our vision is to build the most popular destination for online social networking and entertainment.
Speaker 4: And we are determined.
Speaker 4: in our pursuit of this goal. Now I turn this call over to our President, Mr. Saisy Ismail.
Speaker 4: for a closer look at our recent developments.
Speaker 5: Hello everyone.
Speaker 5: And thanks for joining us today Let's take a closer look at our quarter one operation as we'll add our products performances
Speaker 5: We are pleased to deliver solid Q1 results with our total revenue of 73.5 million USD landing in the high end of the company's guidance.
Speaker 5: As Tao mentioned, Ramadan started earlier than usual this year and partly fell into Quarter 1. However, its impact is seasonal and limited to our products and was in line with our expectations.
Speaker 5: Our monthly active users increased by 12.9% year over year, reaching 33 million. Yellow groups weighing users also increased to 13.5 million, demonstrating users' increasing willingness to pay on our platform.
Speaker 5: Our team will continue to refine our user acquisition and operational strategy to further improve operating efficiency.
Speaker 5: Before we move on to financial, I would like to mention that Yella group was extremely honored to receive the Golden Award of the Most Innovative Social App for our flagship voice-centric group-chatting app Yella Life. At the prestigious Middle East and North Africa TV Awards.
Speaker 5: 2023.
Speaker 5: The Seavey Awards organization was founded in 2002 and is considered one of the most prestigious global awards in the business world. With a participant space encompassing 70 countries and adjudication team of more than 1000 executives worldwide, this year's event received more than 800 nominations.
Speaker 5: from organizations across 18 countries in the MENA region. We view this mysterious award as yet another testament to our team's dedication to product excellence and their accomplishments throughout the past year.
Speaker 5: boasting detailed features and localized appeal that deeply resonates with users. Yalla's mobile applications deliver an unbarreled user experience that fosters a loyal sense of belonging, creating a highly devoted and engaged user community. Yalla groups strive to exceed users' expectations with innovative and innovative technologies.
Speaker 5: leaving greater success and cementing our position as the largest online social networking and gaming platform in the MENA region.
Speaker 5: I would also like to share with you that during the holy month of Ramadan, we hosted a Sahur gathering in Dubai, bringing together more than 100 governmental officials, business partners, industry experts and local media leaders for a festive celebration and discussion of the technology industry's latest trend.
Speaker 5: The event sparked a fascinating exchange of innovative ideas among our guests, building new relationships across the region and industry. We were privileged to host this distinguished group and have an opportunity to express our sincere gratitude to our partners.
Speaker 5: for their unwavering trust and support. As the largest local online social networking and gaming company in the MENA region, we firmly believe that strong relationships and extensive cooperation among our stakeholders can accelerate our company's development.
Speaker 5: and industry progress, brightening better experience and bringing better experience to users while boosting regional economic development. We will continue to build and maintain our friendships with local communities, business partners and media.
Speaker 5: to jointly promote the development of MENA's digital economy while preserving and enjoying our unique local culture tradition.
Speaker 5: In conclusion, 2023 is poised to be very full of opportunities. The MENA region has been investing heavily in many sectors, including infrastructure, technology and innovation, which has led to a surge in economic development. The entire region is set to embark on a new era of growth.
Speaker 5: As the largest MENA-based online social networking and gaming company, YALA will closely monitor trends, maintain open communication with global companies exploring the MENA market, and strive to immerse the changes and opportunities brought about by brokers.
Speaker 5: With our solid business fundamentals, our deep local know-how, the strong connections we have built over the past seven years, and our diversified and evolving product portfolios across social networking and gaming, we are well positioned to capitalize on potential growth opportunities. As always, we remain steadfast in our commencement.
Speaker 5: to serving MENA users evolving needs in online social networking and gaming.
Speaker 5: With that, I will now turn the call over to our CFO , Karen, who will discuss our key financial and operational results.
Speaker 6: Thank you, Saifi. Hello, everyone. Thank you for joining us.
Speaker 6: We were pleased to sustain our year-over-year revenue growth momentum in the first quarter as we continue to strive for the high-quality development and user growth.
Speaker 6: During the quarter, we also actively refine our cost management.
Speaker 6: operations and processes to improve overall efficiency. Our ROI-based marketing strategies may remain effective.
Speaker 6: evidenced by decreased sales and marketing expenses and solid growth in both MAUs and paying users for the first quarter. As a result, we maintained healthy levels of profitability during this quarter, recording a net margin of $2.5 billion.
Speaker 6: 27.1% and excluding share-based compensation, a non-GAAP net margin of 34.7%.
Speaker 6: Looking ahead, we see our Emperor Cache position and proven execution capabilities empowering us to capitalize on future opportunities.
Speaker 6: drive sustainable growth and create value for all our shareholders.
Speaker 6: Now I would like to walk you through our detailed financials for the first quarter of 2023.
Speaker 6: Our revenue was 73.5 million US dollars in the first quarter of 2023. A 1.6% increase from 72.3 million US dollars in the same period last year.
Speaker 6: The increase was primarily driven by our broadening of our user base and our enhanced monetization capabilities.
Speaker 6: Our average MAE use increased by 12.9% from 29.2 million in the first quarter of 2022 to 33 million in the first quarter of 2023.
Speaker 6: Now let's take a look at our costs and expenses.
Speaker 6: Our cost of revenues was US$27.9 million in the first quarter of 2023.
Speaker 6: 1.2% increase from US$27.5 million in the same period last year.
Speaker 6: primarily due to an increase in salaries and benefits resulting from the expansion of our operation and maintenance team, as well as an increase in technical service fees resulting from the expansion of our product portfolio.
Speaker 6: Cost of revenues as percentage of total revenues remained relatively stable at 37.9% in the first quarter of 2023.
Speaker 6: compared with 38.1% in the same period last year.
Speaker 6: Our selling and marketing expenses were US$11.4 million in the first quarter of 2023. A 9.4% decrease from US$12.5 million in the same period last year.
Speaker 6: primarily due to our more disciplined advertising and the promotion approach.
Speaker 6: Selling the marketing expenses as percentage of total revenues was 15.4% in the first quarter of 2023, decreasing from $1.5 billion to $1.5 billion in 2020.
Speaker 6: 17.3% in the same period last year.
Speaker 6: Our general and the administrative expenses were $10.2 million in the first quarter of 2023.
Speaker 6: 26.6% increase from
Speaker 6: 6 million US dollars in the same period last year, primarily due to an increase in incentive compensation and the increase in professional service fees.
Speaker 6: GNA senses as percentage of total revenues increase from 11.1% in the first quarter of 2022 to 13.8% in the first quarter of 2023.
Speaker 6: Our technology and product development expenses were $7.4 million in the first quarter of 2023.
Speaker 6: a 23.8% increase from 6 million in the same period last year, primarily due to an increase in salaries and benefits for our technology and product development staff, driven by an increase in the headcount to support the development of new businesses and expansion of our product...
Speaker 6: As such, our operating income was $16.7 million in the first quarter of 2023, compared with $18.3 million in the same period last year.
Speaker 6: Excluding share-based compensation, non-GAAP operating income in the first quarter of 2023 was US$22.3 million. We strategically leveraged high interest rates with a strong cash position, resulting in a substantial interest income of US$3.1 million during this quarter.
Speaker 6: Our income tax expense was 0.62 million in the first quarter of 2023 compared with 0.61 million USD in the same period last year.
Speaker 6: Moving to the bottom line, our net income was 19.9 million US dollars in the first quarter of 2023, compared with 17.7 million in the same period last year. The three share-based compensation expenses non-gap net income for the fourth quarter of 2023.
Speaker 6: was $25.5 million. Next, I would like to briefly go through our liquidity and capital resources.
Speaker 6: As of March 31, 2023, we had cash and cash equivalents of $435.6 million as compared with cash and cash equivalents of $407.3 million as of December 31, 2022. This improvement demonstrates our ongoing commitment to refine our business.
Speaker 6: Class A ordinary shares from the open market with cash, totally approximately US$27 million.
Speaker 6: The total value of ADS or Class A ordinary shares that may yet be purchased under the share repurchase program was $100,000.
Speaker 6: US$23 million as of March 31, 2023. Our board of directors has approved an extension of the expiration date of the share repurchase program to May 2021-2024. Moving to our outlook for the second quarter of 2023.
Speaker 6: We expect our revenues to be between US$68 million and US$75 million.
Speaker 6: The above outlook is based on the current market conditions and reflects the companies management's current and preliminary estimates of their market and operation conditions and customer demand, which are all subject to change.
Speaker 6: This concludes our prepared remarks for today. Operator, we are now ready to take questions.
Speaker 2: Thank you. If you'd like to ask a question please press star 1 on your telephone and wait for your name to be announced.
Speaker 2: If you'd like to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question.
Speaker 2: Your first question comes from Thomas Shen from Nomura.
Speaker 3: Please go ahead. Hi, good morning management. Thank you for taking my question. I have one question. Could you share more color on Yala's monetization strategies going forward? Thank you.
Speaker 4: Hi Thomas, good morning. This is Kariow. And I will take this question. Regarding monetization strategies, what is the role of monetization strategies in the market? And I will ask you a question. So, I'm going to ask you a question. Regarding monetization strategies, what is the role of monetization strategies in the market?
Speaker 4: For the flagship applications, Yella and YellaLuda, we don't expect big changes. We will continue to look at all the product iterations and roll out new events.
Speaker 4: game mode, etc. But the key monetization model will not be changed.
Speaker 4: For our new casual games such as Patches and 101 OK.
Speaker 4: Its monetization capability continues to improve over the past two quarters as we continue testing the best way to monetize it and we will continue to roll out new functions and features. For mid-go and hardcore games, I would say in-app purchases will still be the major way to monetize.
Speaker 4: At the same time, our strategic department is also actively looking for external opportunities for investment and collaboration. And if there is more concrete plans, will it keep you updated on the potential monetization of the new businesses? Thank you so much. Thank you so much.
Speaker 4: At the same time, our strategic department is also actively looking for external opportunities for investment and collaboration. And if there is more concrete plans, will it keep you updated on the potential monetization of these new businesses? Thank you.
Speaker 2: Thank you. Your next question comes from Zhe Guiing Zhang from CICC.
Speaker 2: Thank you. Your next question comes from Zhaqun Zhang from CICC. Please go ahead.
Speaker 6: Thank you for taking my questions. I have two. The first one is related to the cost and OPEX. According to the guidance in the prepared remarks, we will absorb dollar value of these costs and the R&D GMA expenses remain relatively stable. The second one is that we will promote the cost of the R&D GMA expenses.
Speaker 6: This is Karen. I will take your first question and leave the second strategic one to Mr. Tao Yang.
Speaker 6: Looking ahead to the rest of 2023, if there is no large-scale investments in new initiatives, I believe our R&D and GA expenses will be maintained at a relatively stable level. As we mentioned last quarter, I think for 2023, taking the potential sales marketing expenses on our mid-core to hardcore.
Speaker 4: Hi, Xiuqing, for the second question, let's say last year we started to drive traffic from Gala and Gala Ludo to our new products, for example Gala Chat, and some of our casual game products.
Speaker 4: So we are well prepared to promote our article games within our community where users are highly engaged and many of them are also game lovers.
Speaker 4: We did see outstanding conversion rates from our past experiences. And that's one of the important advantages we have, and one that supported us to start our game distribution business in minutes.
Speaker 4: However, it doesn't necessarily mean that we will adopt advertising as a commercial approach immediately. So far, we haven't collaborated with any external platforms yet.
Speaker 4: We only share traffic with our own products within the Yara ecosystem.
Speaker 4: At the same time, we are also trying our best to seek the right balance to protect our users' experiences.
Speaker 4: Every time when we decide to promote a new product in our community, we will test first to evaluate its impact.
Speaker 4: And regarding our hardcore game marketing strategy, besides leveraging our own user community, we will also purchase traffic from external channels.
Speaker 4: which will help us to evaluate the efficiency or value of our Yalla community from a commercial perspective.
Speaker 2: Thank you, Chi Chi. Thank you, Karen. Thank you, Paul. Thank you. Thank you. Your next question comes from Xin Gao Li from CICC.
Speaker 7: Please go ahead.
Speaker 3: Good morning, management. Thanks for taking my question. I have a follow-up question about the progress of the company's two hardcore games. Could the management share about how is the testing going for the two new games and are there any comparable products in the Middle East market that can help us understand their potential?
Speaker 8: positive feedback from users for both new games during the testing. And we also continue to work on optimizing the design of the games based on user feedback. If you check the ranking on App Store or Google Play, you will find a number of popular SLG games. The popular generous of gaming Mina.
Speaker 8: For our SLG game, Birch Kingdoms, we hope to deliver more localized gaming experiences to many users. And for the RPG game, currently there is no iconic product in the region yet, but we think it's a genre that is worth pursuing, especially for Turkey, where RPG games have the largest share of the market. If we just launch the RPG game AOL, it will take some time to get a more concrete...
Speaker 2: Thank you. Your next question comes from Xiaoyue Hu from Haitong.
Speaker 9: Please go ahead. Hello management, thank you for taking my question. So my question is about the company's Kiro products. Could management help provide a growth outlook for the Kiro Games portfolio, especially Yala, Parkeys and 1.1 OPL? Thanks. Good morning, Thank you very much for your question.
Speaker 4: our method for this once there is more concrete information.
Speaker 4: For 101 OK Yella, we mentioned that it's quarterly revenue.
Speaker 4: was around 1 million feet. And we think there is still ample room to grow. We are confident in the product's monetization capabilities.
Speaker 4: and we think they're still important to girls. We are confident in the product's monetization capabilities. Thank you very much.
Speaker 2: Thank you. Thank you. Our next question comes from Kaifeng Jia from CITIC.
Speaker 2: Thank you. Thank you. This question comes from Kaifeng Jia from CITIC. Please go ahead.
Speaker 3: Hi management, thanks for taking my question. I have two. The first is about the users. Can management give some colour to the user growth strategy for different apps, especially gaming? My second question is about the OPACs. How does management build trends for sales experience in the next several years?
Speaker 8: There are two key parts that we care the most about. Firstly, when we promote a new game, thinking about how to build a community with good dynamics is very significant. And in order to achieve that, we need to be very accurate on the pace of marketing. Secondly, as ROI is a key metric for promoting games, we need to be very accurate on the pace of marketing.
Speaker 8: We're monitoring our eye on a daily basis to drive the best results we can deliver.
Speaker 8: For your second question, the promotion of mid-core and hardcore games has its own pace or pattern. At the launch of the game, usually there is an investment period. The company will need to invest in promoting the game first, but revenue may not come immediately.
Speaker 8: The investment period may last for three months to several months according to our industry experience. And of course, it also depends on the different type of gains. Thus, this may drive us ourselves and marketing expenses for the short run.
Speaker 8: But as Karen just mentioned, we have already included a potential impact in our current financial model. Regarding the trend or level of sales and marketing expenses, it may take a longer time for us to get a more concrete evaluation. The trend for mid and hardcore gains is different from that of casual gains. We need to monitor the feedback and optimize the amount to invest during this cycle, and we can keep you updated. Thank you.
Speaker 2: Thank you, that's very helpful. Thank you. Your next question comes from Edward Wang from Credit Suisse.
Speaker 3: Please go ahead. Hi, management. Thanks for the presentations and congratulations on the robust results. So I have a lot of questions about the game.
Speaker 8: What is the common expectation towards a new game pipeline in terms of launch time and potential revenue contribution? Thanks. Hi, Edward. Thank you for your question. In terms of the revenue, since we just launched AOL, it is still hard to give an accurate guidance at this point.
Speaker 8: it may at least take us a couple more weeks. And hopefully we can share more insights with you on our next earnings call. Regarding the launch time, we launched the RPG game AOL at the beginning of May, and for the SLG game, we plan to officially launch it before the end of May. So it's gonna be very soon. Thank you. Thanks.
Speaker 2: Thank you. As there are no further questions now, I would now like to turn the call back over to management for closing remarks. Thank you once again for joining us today. We look forward to speak with you in the next quarter. If you have further questions, please feel free to contact Yara Investor Relations through the contact information provided on our website.
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