Yalla Group Limited American Depositary Shares, each representing one Class A Ordinary Share 2026 Q2 Earnings Call

Please go ahead, ma'am. Hello everyone, and welcome to Yalla's second quarter 2026 earnings conference call.

We issued our earnings press release earlier today, and it is now available on our IR website as well as all news 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, we'll 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 company's financial results and discuss our financial outlook. Following management's prepared remarks, we will open the call to questions. Mr. Jeff Xu, our chief operating officer, will join the Q&A session.

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, everyone, for joining our second quarter 2026 earnings conference call.

We delivered a solid performance across our flagship products and growing momentum in our gaming business in the second quarter. Our revenues were $82.6 million, exceeding the upper end of our guidance. Revenues from game services growing by 11.6% year-over-year to $34.2 million. Non-GAAP net margin remained healthy at 41.7%, even as we doubled our selling and marketing expenses year-over-year to support the promotion of new games. Amid an evolving regional environment, this result highlights both our effective strategy and strong business resilience. Our gaming business continued to make meaningful progress during the quarter, with new core games advancing smoothly and a clear growth roadmap taking shape for their next stage of development.

Our first self-developed Match-3 title, Turbo Match, continued to expand its user base and maintained a healthy user retention trend, not only in MENA, but also in the U.S. and Europe this quarter. Notably, in mid-July, Turbo Match was featured by the Apple App Store in MENA markets such as Saudi Arabia, underscoring the product's high quality and further enhancing its market visibility. In the second half of this year, we will focus on scaling up product commercialization, further unlocking growth opportunities across high potential global markets, and accelerating our global expansion. For our desert-themed SLG title, we executed a paced launch in the first two months of this quarter to drive traffic, gradually ramping up user acquisition spending. Meanwhile, we completed a successful co-promotion campaign between this title and our flagship title, Yalla Ludo.

We are currently working on the next major version update, which will feature richer gameplay content and other enhancements targeting deeper user engagement and improved conversion and monetization. Regarding user acquisition, our near-term priority is to maintain our current scale and momentum while preparing for the next major user acquisition campaign once the new version is released. As this product gains traction, we continue to build our long-term growth strategy around the synergy between our social and gaming ecosystems. We remain dedicated to enriching our product portfolios with several self-developed products in our pipeline, spanning casual games, hyper-casual games, social products, and AI applications. We also keep a close eye on outstanding teams and products to strengthen our Game distribution business and remain engaged with top-tier global game developers to explore potential opportunities for collaboration.

I want to emphasize here that our focus is on new growth opportunities across MENA with a longer-term eye on the wider global marketplace. To drive product innovation, we have accelerated the adoption of cutting-edge technologies across our R&D process. Notably, in the second quarter our team deepened the integration of AI-assisted programming into our game development flow. We launched a proprietary AI model-based system for Match-3 level generation and difficulty evaluation. This initiative has significantly enhanced our game development efficiency by accelerating level design iteration, and consistently provides users with more exciting, more engaging experiences. We will continue to invest in technology that boosts R&D efficiency to accelerate iteration across our product ecosystem. During the quarter, we continued to deliver on our shareholder return commitments under the company's two share repurchase programs launched in 2021 and 2026.

The company repurchased 4.4 million ADS or Class A ordinary shares for $27.6 million in the first half of this year, of which 2.9 million shares were repurchased during the second quarter for approximately $18 million. Our 2021 program expired on May 21st, 2026, and we repurchased a total of $126.5 million under this program. We will continue to execute our newly authorized 2026 program of up to $150 million over the 20 months starting from March 9th, 2026. Additionally, the company has canceled 12.7 million ADS or Class A ordinary shares as of August 14th, 2026. This consistent shareholder return commitment reflects our confidence in the company's long-term growth prospects, underpinned by our robust cash flow generation and profitability.

We consistently place shareholder interests at the core of our capital allocation decisions, striking a dynamic balance between pursuing long-term business growth and maximizing shareholder value. Looking ahead, we will continue to deepen the synergy between our social and gaming ecosystems, while embedding AI at the core of our technology infrastructure to drive long-term competitiveness. Building on years of deep-rooted expertise in MENA, we will continue to unlock local opportunities while pursuing strategic partnerships to expand into new markets globally. We remain confident in our ability to drive sustainable growth and create lasting value for our shareholders. Now I will turn this call over to our President, Saifi Ismail. Saifi, please go ahead. Hello, everyone.

Thanks for joining us today. Let's take a closer look at our second quarter operations and product performance. In the second quarter, our average MAUs reached 47.6 million, an increase of 12.3% year-over-year, and an expected sequential moderation from Ramadan's exceptionally high levels in the first quarter, following a pattern similar to last year. From a broader trend perspective, user engagement across our core products remained solid. With a strong pipeline of operational campaigns, we anticipate continuous sequential MAU growth to resume in quarter three. On the operations front, I would like to highlight Yalla Ludo's solid quarter two performance, a clear recovery from quarter one. This quarter, we continued to advance Yalla Ludo's iterations and further strengthen user engagement, driving a sequential rebound in paying users growth.

Yalla Ludo Carnival Season 6 extended the success of previous seasons, highlighting its strong user traction and monetization impact. Building on this momentum, we launched the Yalla Season Series, a new long-term operational campaign focused on strengthening user engagement, featuring an innovative range of sub-events. Yalla Season is pushing the boundaries of what social entertainment within games can look like. Moreover, our brand anniversary celebration and community engagement initiatives were the highlights of the quarter. To mark the 10th anniversary of our flagship product, Yalla, we launched an array of locally resonant online campaigns featuring a strong sense of occasions tailored to Middle Eastern culture. Over the past decade, our deep-rooted presence and commitment to MENA have established Yalla as an integral part of local users' everyday lives, creating meaningful emotional connection within the community.