Q3 2023 Yalla Group Ltd Earnings Call
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Okay.
Good morning, and good evening, ladies and gentlemen, thank you for standing by for Yellow Group Limited's third quarter 2023 earnings conference call. At this time, all participants are in listen only mode.
After managements prepared remarks.
There will be a question and answer session.
Today's conference is being recorded I would now.
To turn the conference over to your host today, Mr. Carey go I, our management of the company. Please go ahead.
Hello, everyone and welcome to yellow that's called her plenty plenty of three earnings Conference call. We released our earnings press release earlier today and the release is now available on our IR website as well as almost all outlets before we continue. Please note that the discussion today will contain forward looking statements made under the safe Harbor provision.
The U S Private Securities Litigation Reform Act of 1995.
We're looking statements involve inherent risks and uncertainties.
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.
Yeah that does not assume any obligation to update any forward looking statements, except as required by law.
Please also note that yellow, earning press release and this conference call include discussion of unaudited GAAP financial information, that's about as unaudited non-GAAP financial measures. Yeah last press release contains a because of the Asia of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.
Today, you will hear from Mr. Tao, Li our chairman and Chief Executive Officer, who will provide an overview of our latest achievements and growth strategies. He will be followed by Mr. Saturday, If my U the company's proudly that well ill briefly review our recent business developments. This is Kevin Hu, our Chief Financial Officer will then provide additional.
It has all of the company's financial results and discuss our financial outlook.
Management's prepared remarks, and open the call to questions.
Oh drops you will also join the choice action if that's that that's about I'd like to turn the call over to our chairman and Chief Executive Officer, Mr. Tom Yeah. Please go ahead Sir.
Thank you Carrie Thank you everyone for joining our third quarter 2023 earnings conference call.
Pleased to report that we achieved strong third quarter results.
Third quarter revenues reached an all time high of.
$85 2 million USD, surpassing the upper end of our guidance well year over year revenue growth from gaming services exceeded 30% once again.
All the cost efficiency initiatives continue to yield positive outcomes and as a result, net income increased by 44% year over year to 35.2 meeting USD.
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 continue to refine our approach no push status in the house flagship applications gamification improve our gaming mechanics, and optimize our user acquisition strategies.
This effort.
Empowered us to build a more engaged community of users who expect high willingness to spend all of 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.
The digital transformation here.
As to the walls.
However, our readings exciting economic development, it's not the only drawing.
Drawing.
Businesses and the investors to me to see.
History doesn't.
The middle East.
Not being a important cultural.
And the commercial.
Changes between gates in Iraq.
I meet today's changing dynamics across the global landscape raging as curtsy, gaining increasing strategic importance.
We have observed.
Bulking number of outstanding business.
Considering Mina and their company is next important girls opportunity there this year.
Testament to the region's unique synergies with both eastern and western economies as.
As well as its what potential at a market capacity.
Moreover, me that's driving part.
Ecosystem.
It's supposed to ring and broke the perennial ship and start ups.
Talent from around the globe.
Those have created a wealth of opportunities for you that two iterations and.
Divers future.
This initiatives.
The largest me that based on launch, which will not working and gaming company.
<unk> is well positioned to seize his chance to propel this company its development as well as progress across local and global economies.
Now I'd like to share some important updates on yellow games recent medicine.
First the overview of our two quarter, our progress with respect to our two hot cool games Morris M and H Oaks imagined.
Step two hour consistent game of iterations and in.
Engagement with our existing yellow user community.
With games have gained detection.
In the Mena region.
Notably March kingdoms, what's wrapped in a top 10 strategy games in Gulf countries, including Saudi Arabia and Qatar.
In terms of revenue, it's all AOS.
Age of legends Osaka hub to that talks about how Google tastes real playing games category in terms of revenues in Saudi Arabia, UAE and older.
Compared with our flagship efficacious with good uncle game, that's due not making the.
Substantial contribution to our groups as long as we.
We see you mess room.
<unk> growth in this sector.
Turning to our strategy for yellow games' future growth.
To the group puts us off developing our two hardcore games, we have gained a more comprehensive understanding.
The local gaming market as well as operation.
<unk> had a cooperation strategies.
Our experience with this game has strengthen our determination to engage more deeply in the coal and hardcore games business in Mena.
It is worth noting that uses game jaras.
And design preferences can differ across regions and are changing rapidly as.
As such we will continue to iterate our games based on user feedback.
Mostly monitor the market and do it is just our product and operations to act accordingly.
Moving forward well.
We will gradually increase our investments in medical with alcohol games.
<unk> our growth potential in this flourishing Margaret.
We are presently exploring new game categories and already have flowers games in our pipeline.
We expect to accelerate the launch of our new games in the coming years.
What are they also continue to actively communicate with excellent gaming studios and production teams across the industry and look forward to considering.
<unk> partnerships.
On a related note. According to news research meter gaming market currently bring things 7.2 billion USD and new every revenue.
With a growth rate of six 9% year over year, a molder fastest growing market worldwide.
Yeah.
Meanwhile, giving the considerable size a little bit more pure gaming market in China, The U S and Europe.
As those regions. They also offer opportunities for.
I still believe themed games, we remain dedicated to the meter market well exempting the possibilities and they modify and distribute our games in additional regions as we see feet.
Before I conclude I would like to mention that in addition to make one article games.
We are exploring new products and businesses.
That could bring traditionally offline services online for me light users as a complement to yellows portfolio.
These initiatives show great promise in the routing mean is digital transformation as well as the.
Actual to surf medians of Mena methods.
We will share more details with you when there is a meaningful progress.
In summary.
We remain confident in the growth opportunities presented by Minez increasingly.
People don't know all the globe global stage.
This region's rapid digital transformation.
And the largest meter based on lower social networking and gaming company.
We are dedicated.
Two building relationships locally and globally to grow then our business arises.
Joe I mean as.
Economic development.
We will continue to access new growth prospects.
As we develop compelling digital products tailored to the needs of local users creating.
The tangible value for all of our stakeholders.
Now I will turn this call over to our President Mr. Safi is my you for a closer look at our recent developments.
Hello, everyone.
Thanks for joining us today.
Take a closer look at our third quarter operation on our products basketball months, we delivered another robust quarter with.
Oh go.
They'd give me application of our products continue to beautiful.
As Don mentioned.
What enhancements live in half.
I've lived through user engagement.
But that's what would I bet its monthly active user, but I didn't quite get invoice.
You're already at 250.
The five 1 million.
Our high value Julien.
We're looking at it.
Spend on boost and gamification feature driving audible.
I've been born three five for U S dollar.
Third quarter from 689.
In the same period of last year.
And they said no.
One of our kids what that adjustment.
Mechanism was aimed at boosting.
But all you need good engagement and did it get any better.
This resulted in lower frequency or loss then.
On the platform.
And it did lead to.
A slight decrease of two one Patterson and our total number it'll thing you yet.
We are still fine tuning beats adjustment as we seek to get better.
And as such we expect definitely curation and being really good would be it's embedded.
Closely monitored anywhere in basketball.
Just me and will adapt like Golden Gate.
Well our flagship application yellow, we continue to improve gaming features on their own.
A theory, but I shouldn't activity.
And let me can you hear you Ben I'm not sure 90 day event.
Countries in Mena.
Justin with local disturbing to enhance user engagement activities like these demonstrate our commitment to you.
Give satisfaction and strengthen the sense of community on our platform.
With respect to Iran.
We launched a number of open but I shouldn't have you been.
No we didn't.
Yeah, you bet and I missed the new store opening event. We also continue to improve they gave me if acacia and open that up.
Which drove a significant increase in consumption compared with the third them with debt over the previous quarter.
Now I would like to shed additional third quarter highlights.
Sustainability has always been integral to our corporate value in August yellow established that sustainable at cone cash management with standard chartered and one of the worlds leading international Bank.
Just interested in a bit of a reference.
Against Standard chart, that's sustainable.
Addressing some of the award.
No.
You said it.
I mean that continues to develop rapidly we will leverage our strong cash position and local insight to incorporate sustainable breakfast is company wide.
Ensuring that our cash management procedure.
To enhance the sustainability you throw out the local and international economy, the flick over all direction as well as our broke down commitment does that mean that region.
Furthermore, we were recently invited to speak at Jive to noble expand North stars when people want to be the world's largest technology lots up event held in Dubai in Nicaragua.
Bye George Milberg Awards, most established and I Couldnt get sick inhibition expand north star.
<unk> founding venture capital and if you did.
Facilities with Nixon our money the startup ecosystem.
And it's better content broke drama featuring lively discussions among all about 70 of Unicorn Bongo, including yellow on 20th when he said city.
Got it.
Events like Deutsche Bank Global showcase our region open and communicated business ecosystem and a global stage.
We met all of them.
If you recall, the unloved development story business experience and invested it inside.
This remaining even I'm proud to highlight the unique advantages that the Mena region.
Oh Fotis for this company and stuff.
It was the first U E bid Unicorn.
Unicorn the analyst on the N Y E D.
Deeply committed to driving brokers.
The startup community, while Robert and digital development through all of them you know.
It's exciting to witness and Barclays debate in Mena digital transformation riding this wave economic development, we will continue to push at the boundaries of innovation to offer a premium product and said Mr.
Local you'd go to tablets.
As always we remain dedicated to becoming the number one online social networking and entertainment basketball and May not even with that I will now turn the call over our CFO, who will discuss our financial Oh, but I shouldn't I mean.
Thank you Sophie 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 margin expansion.
Our relentless efforts to streamline costs as well as our in house all IP.
Marketing strategy continued to yell the positive outcomes.
Enabling us to elevate our efficiency.
In addition, we continue to strategically elaborate your high interest rates to achieve higher returns.
As a result, our net margin rose to 41, 4% and a non-GAAP net margin rose to 44, 9%.
As we head into our fourth quarter, we will continue to ask huge our high quality growth strategy with brokers on efficiency and profitability enhancement, we believe our Saudi to fundamentals and a 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 onto our detailed financials for the third quarter of 2023.
Our revenues, well 85.2, meaning U S dollars in the third quarter of 2023.
A 6.4% increase from a T point, you want meaning U S dollars in the third quarter of last year.
The increase was primarily driven by our broadening of our user base and our in house the monetization capability.
Our solid revenue growth was also partially attributable to what else. He can either tend to increase in absolute which grew from six point to 18 nine U S dollars in the third quarter of 2022.
Two $7.35 in the third quarter of 2023.
Now, let's take a look at our cost and expenses.
Our cost our total cost and expenses.
Well 52 point H, meaning U S dollars in third quarter of 2023 or five.
<unk> five point.
A 5% decrease from 55.6 million U S dollars in the same period of last year.
Our cost of revenues decreased by six point to 1% to 27.8, meaning U S dollars in third quarter of 2023.
Down from $29 6 million U S dollars in same period of last year.
Cost of revenues as a percentage of our total revenues decreased from 32, 6% in third quarter of 2023, compared with 36 point in ninth sense in that.
In the same period of last year.
Our selling and marketing expenses were 11.3 meeting U S dollars. He says culture of 2023.
A 5.5% a decrease from 12, meaning U S dollars in same period of last year.
Primarily driven by lower share based compensation expenses recognized in third quarter of this year.
Selling and marketing expenses as a percentage of total revenues decreased from 14.9% in third quarter of 2022 to 13, 3% in the third quarter of 2023.
Our general and administrative expenses was 7.3 million U S dollars in third quarter of 2023% to 14.5% decreased from 8.6, meaning U S dollars in the same period of last year.
Primarily driven by our lower share based compensation expenses recognized in the third quarter of this year.
General and admin expenses as a percentage of total revenues decreased from 10, 7% in the third quarter of 2020, 228.6% in the third quarter of 2023.
Our technology and product development expenses was 6.4 million U S dollars in third quarter of 2023.
Seen point of 6% increased from 5.5, meaning U S dollars in the same period of last year, primarily due to an increase in salaries and benefits for our technology and product development staff to support our development of new businesses and the expansion of our product to put it for you.
Technology and product development expenses as a percentage of total revenues increased from six 9% in the third quarter of 2022.
275% in the third quarter of 2023.
As such our operating income was 32 point to fill them in U S dollars in third quarter of 2023 of.
32.3% increased from 24.5, meaning U S dollars in the same period of last year.
Eastern shore based compensation expenses, our non-GAAP operating income in the third quarter of 2023, what's the T 5.4 meeting U S dollars at 20.4% year over year.
Our interest income was 5.6, meaning U S dollars in the third quarter of 2023, compared we point H, meaning U S dollars in the same period of 2022.
Primarily due to a significant increase in interest rates applicable to the company's bank deposits and the continued increase in the company's cash position.
Our income tax expense was 710000 U S dollars in the southern culture of 2023.
A 10.2% decrease from 700, and the 19 sort into U S dollars in the same period of last year.
Moving to our bottom line, our net income increased by 44.3% to 35.2, meaning U S dollars in the third quarter of 2023, compared with $24 4 million in U S dollars in the same period of last year.
Next I would like to briefly go through our liquidity and capital resources.
Our cash position remained solid as of September 32023, we had cash and cash equivalents restricted cash term deposits and short term investments of 545 million in U S dollars compared with 453 million U S dollars.
As of December 31, 2022.
Under our 150, meaning U S dollars share repurchase program that began may 'twenty, one 2021 and has seems to be extended by our board through May 'twenty, one 'twenty 'twenty four we have repurchased one meaning 617007.
And the 35 80 S. Four class a ordinary shares in open market cash repurchases totally.
Approximately 8.5, meaning U S dollars in the third quarter of 2023.
Accumulatively, we have repurchased 3 million 972876, a D. S O class a ordinary shares in open market cash repurchases totaled approximately 35.5, meaning U S dollars as of December 13th 2023.
Moving to our outlook for the first quarter of 2023, we expect our revenues to be between 73 million U S dollars and 18 million U S dollars.
The outlook is based on our current market conditions and reflects the company's management's current and preliminary estimates of the marketing and operating conditions and customer demand, which are all subject to change.
This concludes our prepared remarks for today I'll feature we are now ready to take questions.
Yeah.
Thank you to ask a question you May Press Star then one on your telephone keypad, if anything it's handset headset. Please pick up your handset before asking you.
Okay.
So I didn't want if you'd like to ask a question.
Our first question comes from.
Okay thing that I see I see.
Yeah.
Thank you management for taking my question and congratulations on the strong culture and I had to your curriculum.
To call out there.
I'm seeing a jump women by a lot and they are neutral this year Oh, how shall we think about the growth potential of these two ships.
Production in the future and the second one is about our financial outlook and you have recorded all time high revenues and strong project manager and its culture.
So can management share more cash out of the revenue goes up.
That's tough to imagine a trend yes, okay.
Yeah.
Hi, good.
Good morning, and thank you for pressure how do you take the first one.
I was here for Kevin will take the second one.
Regarding our flagship applications.
And you Gotta Ludo, we believe our strategies have proven successful over the past seven years yellow on Yodlee will now have impressive levels of AR and influence among their users.
Who have shown considerable loyalty to the platform and we anticipate both products.
We're enjoying especially long life cycles and the other aspect I would like to love to emphasize is that we all the efforts to ease this all quality growth.
Secondly, support our platform development.
So they shouldn't capability looking at 'twenty 'twenty four we will continue to work on product.
Ration and explore more new features to serve users evolving needs and we are confident that yellow yellow ludo cannot believe it can be paying performance is similar to this year.
Okay.
Hi gene. Thank you. Thank you for your question.
And in terms of grew revenue gross for the next year. If we consider our current businesses we are confident that.
In 2024 hour revenue will maintain similar levels of as 20 countries suite, 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 NASA destination for many leading companies for explore growth opportunities. We will keep monitoring this trend default from rising plenty of partnership and acquisition opportunities. All of these potential contributions are not inc.
<unk> in the gross guidance I have just to.
Why did we will update our guidance later if necessary.
In terms of margin are taking the potential investments in new products into account.
Annual margin of 35% I think is fair.
This year, we will continue to implement Maris with advocate you just cut cost control of cross each quarter. Its performance may vary depending on how and when we invest in different products.
Thank you for your question again.
Yeah.
Yeah.
The next question comes from Shanghai Mi at the ITC.
Yeah.
Hi management, Thanks for taking my question and congratulations on another solid quarter I have some questions related to the gaming business first.
First could management share about how does the company evaluates the performance of the two recently launched meat and hardcore games.
And you could imagine I'm going to share more color about weekend pipeline and Ah and Nash schedule in the future and Luckily are there any updates on the company's strategy for the can business.
Yeah.
Good morning to all.
Thank you very much for your question.
As I shared earlier and American friends remarks section if we look at the rankings both hardcore games were among the top 10 in their categories and certain Gulf countries.
Although comparable with our flagship applications.
We're still not making a substantial contribution to our group's revenue.
Through this process. We are we have getting the potent experience regarding our operation and the collaborations strategies.
And we see massive room for growth in the mid corn uncle games business, we are committed to developing.
Our Mako and uncle games, and we will continue to invest in this sector in terms of the game. The game pipeline, we have several new products and we will disclose more details later after we received further feedback all the better washes 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.
We look forward to considering more potential partnerships. Thank you your child.
The next question comes from Chi Fong, Yeah C I T I C.
[noise] I'm, taking my question and congratulations on the strong culture.
My question is how do we agree with them and make them competitive in the middle eastern market.
Alright. Thank you very much this is places.
As we highlighted that our management our remarks, the macro environment is very favorable and attractive now more of a motor sources.
Including businesses and.
The investment.
So this is Walter.
One significant aspects we have noticed is that since the second half of last year, we have been invited more frequently to discuss the opportunities that the immuno market.
Our industrial peers more conversations aren't happening.
And that's good.
Through this process, we are able to learn more from each Barclays inside and intentions.
What they have what they need at this point and discuss ways also to calibrate that must be really beneficial.
With all these good years to mine 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 for you.
In terms of the competitive.
The most significant change over the last two years is it still takes up the rest of the major players in the immuno market.
Being in the region for many years.
They gave me some.
Our mobile gaming from China are performing very well in Mena, However, what I would love to share it at that.
Acquisition expenses now in the immuno market is much more expensive.
What we did seven years ago, when we first entered the market.
For some small size company.
That could be a challenge if they plan to blow this monikers on dead on.
I want to reiterate also that competition is never a bad thing.
Inspired us to then they said and said what do you use it.
But he said through newer technologies and investigates bread.
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 capability. After all these years.
Okay.
Okay.
Okay.
Okay.
Next question comes from Lincoln Kang at Goldman Sachs.
Okay.
Hi, Thank you management for taking my question. So I have two questions.
The first one is how does the company.
So if we see the balance between maintaining high profitability and to continue our Pacific last night, especially on new business.
And second one.
Benjamin also provide some insights in terms of the development of off the shelf place.
Overseas market. So it does not it has a strategy or plans in this area.
They're through distribution or is that.
Our platform for traffic acquisition. Thank you.
Yeah.
Thank you Lincoln This is Karen and I will take the first question about the margin and leave the second question to <unk>.
As we just mentioned before the nasty year, we can still keep our net margin at 35% or about a very decent level.
However, the companies do you actively looking for some growth opportunities, we maintain a prudent approach to investing our two focus on pursuing high quality investments and all cross if there are good opportunities that two way benefits. 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 cruise potential I hope I can help you. Thank you.
Okay.
Arlington.
Second question and thank you very much for your question.
Regarding short plays we observe that the business model is becoming very mature in China and received the attention that if.
If we look at the global market for example, the United States and South East Asia.
Most popular destination for short place.
We saw some products already blurring global opportunity, but compared with China. These markets are still a very early stage.
Certainly the Mena region short players are also in Europe. What are you again and it takes time to do good the market.
However, there is more to better serve user need.
I believe content tailored to Arabic culture, a very central we are conducting research to evaluate the market and also talking.
There's some production company. If you allow decides to move into this sector I believe localization might be a better way to cabela dies on our extensive understanding of local culture and market insight. Thank you.
Thank you the next question.
Oh go ahead.
Yeah.
Thank you. The next question comes from Rachel go from Nomura.
Hello, Uh huh.
One I just mentioned about taking my question I'm glad you like them.
The solid culture.
That's right.
Strong high school admission that the company has I think titanfall bikes.
Hi, Rachel Thank you very much for your question.
Cash strongly supports I've as April a region of new opportunities to drive further growth as I stated among the global markets midnight popular and we are seeing emerging acquisitions and the investment opportunities. So how these cash reserves is strategically important for our company.
In addition, we are actively carrying out our share repurchase program in the search culture, we repurchased approximately one 7 million new shares totally around eight.
$8 5 million U S dollars. This reflects our confidence in our share price and we will continue to come back to our repurchase program and the return value to shareholders.
You.
Okay.
Yes.
The next question comes from Natalie Wood high tongue International.
Thanks for taking my question just wondering so as management provide some color on the competition by gala in yellow.
And Ron I took talking Jakob.
Yeah.
Hi, Larry Thank you very much for the question. So as we mentioned earlier more and more global companies and are looking for opportunities in the Mena region. For example, Chita moved to SaaS and he is performing very well in the market. So far in terms of competition picked up has a greater impact on live streaming or short video products. If you look at third party.
Uh huh.
Some of them are losing their market share because the victim of course.
Ah competing for users' time and attention however, taking a closer look at our performance over the past two years I would say our flagship application have done a good job, we're still generating a record high revenues from time to time, probably because our product strategy focused on deep the localization there are always genuity needs.
The big users, who have shown stronger loyalty to our platform we have.
Very confident retardedly about two black black sheep applications and as Mr. Chow Jan just mentioned I expect they will enjoy a long lifecycle.
In terms of Jakafi. It's also allowed streaming platform I don't think we compete directly yes. Many labs kidney platforms that have entered the middle market in recent years and as we just discussed is the biggest one that's too many platforms more direct competition with each other thank you.
And there are no further questions now I would like to turn the call back over to management for closing remark.
Thank you once again for joining US today, we look forward to speaking with you in the next quarter or if you have further questions. Please feel free to contact Investor relations or P. S N pay financial communications.
His contact information is available in today's press release as well as all of our company website.
This concludes this conference call you May now did you.
You may now disconnect your line.
[music].