Aurora Mobile Limited (JG) Q2 2023 Earnings Call

Aurora Mobile Limited (NASDAQ:JG) Q2 2023 Earnings Conference Call August 31, 2023 7:30 AM ET

Company Participants

Weidong Luo - Chairman and CEO

Shan-Nen Bong - CFO

Conference Call Participants

Brian Kinstlinger - Alliance Global Partners

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Aurora Mobile Second Quarter 2023 Earnings Conference Call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your host for today, Vinay [indiscernible]. Thank you. Please go ahead, sir.

Unidentified Company Representative

Thank you, Michelle. Hello, everyone. And thank you for joining us today. Aurora's earnings release was distributed earlier today, and is available on the IR website at ir.jiguang.cn.

On the call today, I'm Mr. Weidong Luo, Chairman and Chief Executive Officer; Mr. Shan-Nen Bong, Chief Financial Officer, and Mr. Guangyan Chen, General Manager. Following their prepared remarks they will be available to answer your questions during the Q&A session that follows.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as a mandate and is defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions, which are difficult to predict and may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties and factors are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

With that, I'd now like to turn the conference call over to Mr. Luo. Please go ahead.

Weidong Luo

Thanks, Renee. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2023 second quarter earnings call. Before I comment on our Q2 results. I would like to remind everyone that the quarterly earnings deck is available on our IR website, you may refer to the data as we proceed with the call today.

Coming up for our seasonal slow Q1 quarter, we managed to achieve a few good results sequentially in this quarter. Overall, we did seen signs of recovery on most of the business front within the quarter. However, they are not bad to the level a year ago. During Q2 of 2023, with the [indiscernible], firstly, we continue to expand our subscription business with the help of our EngageLab product offering overseas. I will share more on our engagement business at a later part.

Secondly, our value added service patriots record impressively sequential revenue growth. Further a vertical application bases record solid growth, last but not least, we continue to control our expenses for our organization.

With these as the backdrop, here are the good financial results that I would like to share with you. Total revenue grew 12% quarter-over-quarter. Gross profit grew quarter-over-quarter to RMB47.7 million. Lowest adjusted operating expenses since IPO at RMB54.6 million rows operating expenses. Lowest operating expense since IPO at RMB54.1 million. AR turnover days at 47 days improvement year-over-year and quarter-over-quarter.

The Product Revenue has about RMB130 million for the past six consecutive quarters.

Now let me go for all different revenue streams. Developer Services that revenue decreased 6% year-over-year many due to the weakness in the value-added services offset by the 50% growth in subscription services. However, Developer Services revenue grew solid by one 5% quarter-over-quarter, where both subscription and value-added services have a record sequential revenue growth.

Subscription services revenue were RMB40.5 million, up 6% year-over-year, mainly driven by increasing ARPU. Similarly, with record revenue growth of 8% quarter-over-quarter, with the growth in ARPU between the quarters. Some of the notable new and renewal customers in this quarter include but not limited to [indiscernible] just to name a few.

Value-added services revenue were RMB11.5 million decreased by 32% year-over-year, which was a result of a weak advertising demand. However, we managed to record a good sequential revenue of 45% quarter-over-quarter. This was mainly due to our ability to capture a good portion of the e-commerce advertising spending for the 618 online shopping festival. However, we remain cautious on the revenue growth in the online advertisement market.

Now, let me give you some updates on our oversea EngageLab product. As I shared in the pre-quarter earnings release, we now have the data center across the globe are catering for customers in different regions and continents. As we expand our footprint globally, we can sign up more international customers. Our investment in technology, innovation and building global infrastructure help pay off.

As of now we have global customers coming in from 12 different countries and regions including Hong Kong and Taiwan. For our discussion with these oversea customers, they selected our services mainly due to the following reasons. One, reliable and stable service delivery, two strengthen data security and compliance, three, local data center across the world.

Let me show some other impressive metrics here in Q2, our Engagement Business segment signed contract value was at 21% of the total new contract value for the group. This number has grown three times between the quarters showing great momentum. In addition, we have also seen great oversea email and SMS volume growth. In Q2, the total overseas email requests volume was at 3.3 billion representing 4.2 times of our domestic email cross-border. Oversea email and SMS request borders have a record of 19% and 90% growth between the quarters.

Our engagement business activity is gradually growing in importance for both transaction and contract value contributions. Therefore, I'm very confident on the progress of our overseas business strategy that we have started a year ago. I believe we will we have the benefit of the overseas effort in the near future.

With that I will now pass the code over Shan-Nen who will share more information about our vertical application and other aspects of our financial performance for this quarter.

Shan-Nen Bong

Thanks, Chris. Just to recap, vertical application mainly consists of financial risk management and market intelligence. In this quarter, what the gap application recorded revenue growth on both year-over-year and quarter-over-quarter basis. For financial risk management revenue grew year-over-year and quarter-over-quarter. This was positively impacted due to ARPU growth between the periods.

In Q2, 2023, we have seen customer consumption or purchase of our services increase past pushing the ARPU quarter-over-quarter. Apart from customer increased their consumption, we managed to sign up more customers such as [indiscernible]. As for market intelligence the revenue remained stable year-over-year and quarter-over-quarter.

I will now go to some of our key expenses and balance sheet items. On to operating expenses. I'm again very pleased to share with you that in Q2 2023, we have yet had another record low quarterly OpEx at RMB64.1 million. For you over your comparison OpEx decreased by 27%, where all three categories of OpEx being research and R&D S&M and G&A or recorded reduction between the periods.

This is critically important for us to maintain our OpEx at optimal level. This is the reason why we are able to record 42% year-over-year improvement in adjusted EBITDA when the revenue dropped by 4% year-over-year, we strive to continue timing monitor and control our OpEx now and going forward.

I'll now go to the individual or OpEx category. In particular, R&D expenses decreased by 26% year-over-year to RMB30.2 million, mainly due to lower headcount that reduced salary costs and associated share-based compensation and a decrease in depreciation expenses as a result of no longer needing as many servers due to our ongoing cloud initiative.

Selling and marketing expenses decreased by 14% year-over-year to RMB20 million, mainly due to the decrease of headcount by 30. G&A expenses decreased by 41% year-over-year to RMB13.9 million mainly due to a $2.5 million decrease in personnel costs and $5.3 million decrease in professional fee.

As I mentioned earlier, as a result of our focus to drive OpEx at optimal level, the adjusted EBITDA improved significantly by 42% year-over-year to negative RMB4.6 million.

Onto the balance sheet, I will again share two very important KPI that we closely monitor. We continue to maintain a healthy AR turnover days at 37 days. This was a huge improvement from a year ago, where the AR turnover days was at 46 days. And we also shorten the AR turnover days quarter-over-quarter. In summary, our team has done a great job in this quarter to improve our cash collection and mitigating the AR double debt risk.

Secondly, one of the key financial KPI for tracking the performance of SaaS company is a total deferred revenue which represent cash collected in advance from customers for future contract performance. The balance continues to be at high level of RMB127.3 million and this is the sixth consecutive quarter where our deferred revenue balance exceeded revenue RMB330 million.

We continue to sign up new and renewal customers where they prepaid their fees in advance. This again really improve our cash flow quarter-over-quarter.

Next, total assets were at RMB371.9 million as of June 30, 2023. This includes cash and cash equivalent of RMB51.1 million, accounts receivable of RMB34 million, prepayments and other current assets RMB31.1 million fixed assets at RMB10.1 million long-term investment of RMB140.4 million, goodwill of RMB37.8 million and intangible assets of RMB20.9 million resulted from the SendCloud acquisition in March 2022.

Total current liabilities were to RMB235.8 million as of June 30, 2023. This includes short term loan of RMB5 million, accounts payable of RMB22.2 million. Current operating lease liability of RMB7.2 million, deferred revenue of RMB135.4 million accrued liabilities of RMB65.8 million.

And lastly, before I conclude I'll give a quick update on the share repurchase plan. In a quarter ended June 30, 2023, we repurchased 443,000 ADS. Cumulatively we have repurchased a total of 1.83 million ADS since the start of our repurchase program.

And this conclude management prepare remarks. We're happy to take your call now.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Calvin Huang with [indiscernible] Capital. Your line is open.

Unidentified Analyst

Thank you for taking my question. I'd like to have two questions if I may. The first question is related to your financials. Actually, it is great to see that your financials recording continuous improvement every quarter. Last quarter we saw sequential increase in revenue, sequential decrease in OpEx and sequential narrowing in negative adjusted EBITDA. So, the question is simple what is the management expectation on turning into positive adjusted EBITDA? Is this something we will see like next quarter or in Q4 of this year?

And the second question is related to your EngageLab product. We actually see that your EngageLab product was making good progress overseas. So can management share more about the progress? And how management is looking at this business and its growth path? So the first question is related to you, adjusted EBITDA? The second one is willing to EngageLab product. Thank you.

Shan-Nen Bong

Sure. Sure, Calvin. This is Shan-Nen. Let me take your call. Yes, you're right. Your observation is spot on. Yes, a financial KPI be revenue growth, OpEx number or adjusted EBITDA are all improving sequentially. So as a company, we are very pleased with the effort made by the team throughout the organization over the few quarters. I guess, our work is not done, we still need to make good progress on the revenue expansion. I think we need to moving customers moving into more customer or getting more customers in and outside of China and increasing the ARPU across the board.

And secondly, I think we certainly cannot take our eyes off monitoring our expenses. But the market conditions are relatively volatile, as you know. So I believe we are in great position through the hard work that we have put in for the past six or eight quarters in the past year or two.

And the question you asked, based on our current trajectory, we are cautiously optimistic that should, if everything goes according to our plan, we should be able to record positive adjusted EBITDA in Q4 of this year. I guess, I do have to put a disclaimer, this is our best current estimate and is subject to market conditions. Nevertheless, I think should -- but there's still a possibility that we could turn adjusted EBITDA up positive in Q3 Should everything goes according to plan or earlier than what we expected. So we will see how we trend in Q3.

And the second question you asked about the EngageLab? Yes, I think you have heard what, Chris has said, we are very pleased with the progress with EngageLab product. I guess a few things that we have done well. I think one is the fact that we have invested additional data center infrastructure around the world. This give our overseas customer great option to choose how and where they want to store the data that better suits their security and compliance needs. And of course, ensuring our service delivery is our most important. We need to make sure that our services meet or even exceed customer expectation. We need to address all our customers concern on a timely basis.

Therefore, whether the customer is based in Singapore or Australia or in China will have to provide a consistent high level of quality, high quality services to all our customers around the globe.

And also, I was giving an update on the latest, I guess, from based on the deck you have seen. Our customer coming from 12 countries and regions around the world. I was told earlier this week that we are now starting to process additional service in Mexico and Turkey. So I guess you can see our service, our services, our services are moving into new territories, quarter-over-quarter. And therefore we believe we have done many things right for us to be able to venture outside of China. And we should continue to grow our overseas customer base every quarter.

So this is my answer to your question, Calvin.

Unidentified Analyst

Thank you. Thank you for your comments on the positive adjusted EBITDA. It's very clear. Thanks.

Shan-Nen Bong

Thank you.

Operator

Thank you. Our next question comes from Brian Kinstlinger with Alliance Global Partners. Your line is open.

Brian Kinstlinger

Great, thanks so much. The earliest success you having overseas sounds great. I'm wondering if you can quantify the revenue impact during the second quarter and maybe put some context into how you expect this to ramp overseas in terms of revenue.

Shan-Nen Bong

Hi, Brian, this is Shan-Nen. Right now the contribution is not material as yet. But probably as you know, based on our business model. One contract they will find the revenue is when you contribute on a on a monthly basis for the next 12 months.

So I guess the good thing that we have seen is like what Chris has said, based on the new contract that we have signed in Q2, 20% of them is coming from overseas. And this has increased three times from Q1. So you can see the, the trending of this so called contract value contribution from overseas. So this is something that we are tracking. Maybe in the next quarter or two, when the revenue contribution is material enough, we'll make the disclosure.

Brian Kinstlinger

Got. And what is that? Can you share that contract value with us?

Shan-Nen Bong

Not a value. Yeah, we're not in a position to disclose the value of the contract yet.

Brian Kinstlinger

Right. And then, on subscriptions, you saw higher ARPU, is that pricing or more services for customers. And then do you see more opportunity for ARPU growth in the second half of the year. And if so what drives that?

Shan-Nen Bong

Yes. If any ARPU growth that will come from overseas. And I think we have discussed before I shared with you or all other investors, or analysts, the ARPU that we get from overseas is, is at least double of that of China. So with the contribution from overseas getting bigger our ARPU, certainly we have to go up.

Brian Kinstlinger

But within a bit of overseas working material in the second quarter, what was the factor that drove higher ARPU in the second quarter?

Shan-Nen Bong

Yeah, it's not materially as it has. But it does help out on the ARPU between the quarters because Q1 is always the low quarter for the year. So back to your question. Overall, we did see some pickup on the ARPU. But what I'm trying to say is a major contribution is coming from overseas, the ARPU growth.

Brian Kinstlinger

And then how much of the sequential revenue growth in value added services was a result of capturing the ad spend on June 18 Shopping Festival? And then are there any other such festivals that we should think about in the second half of the year?

Shan-Nen Bong

Sure. I will say majority of the value-added services, revenue growth is from the 618 Festival. So if you look at going forward in China, I think there are two big so called a big online e-commerce festival. One is the 6/18. And the other one is 11/11 in Q4. So having said that which means that Q3 will likely to be a slower season, compared to Q2 and Q4.

Brian Kinstlinger

Got it. Great. And lastly, while you guys have done a great job in managing expenses, the gross margin was at a multiyear low during the second quarter. What were the factors that drove that? And is that more of an anomaly? Or is it more of the new baseline for the company? Thank you.

Shan-Nen Bong

No, it's not a baseline. If you look at what we have based on our current Q3 estimate, the gross margin is going to come up is going to be higher than 65. The answer to your the other question and the first question you asked. The reason was simply because the fact that the SMS related revenue contribution was higher in this quarter, because the SMS business or revenue tend to have a lower margin compared to other SaaS business because we have a kind of a fixed costs that we need to pay to telcos.

Brian Kinstlinger

Great.

Shan-Nen Bong

For all the SMS that we sent.

Brian Kinstlinger

Yeah, thank you.

Operator

[Operator Instructions] There no further questions at this time. I'd like to turn the call back over to Vinay for any closing remarks.

Unidentified Company Representative

Thank you, Michelle. Thank you everyone for joining our call tonight. If you have any further questions and comments, please don't hesitate to reach out to the IR team. This concludes the call. Have a good night. Thank you.

Operator

This concludes the program. You may now disconnect.