Aurora Mobile Q1 2023 Earnings Call Transcript

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Provided by Quartr
June 15, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Aurora Mobile First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand over to your host today, Christian O'Neill.

Operator

Thank you. Please go ahead, sir.

Speaker 1

Thank you, operator. 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.gguang. CN or through Newswire Services. On the call today are Mr.

Speaker 1

Weidong Luo, Chairman and Chief Executive Officer Mr. Shannon 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 and 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 amended and as defined the U.

Speaker 1

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 or factors are included in the company's filings with the U. S.

Speaker 1

SEC. 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 would now like

Speaker 2

to turn the conference over to Mr. Luo. Please go ahead. Thanks, Christian. Good morning and good evening everyone.

Speaker 2

Welcome to Aurora Mobile's 2023 First Quarter Earnings Call. Before I comment on our Q1 results, I would like to remind everyone that the quarterly earnings deck is available on our website. You may refer to the deck as we proceed with the call today. Despite a challenging macro environment, We successfully concluded Q1 of 2023 with business and social activities slowly recovering during Q3 following a shift in COVID policy towards the end of 2022. Some of our businesses were impacted to vary decrease.

Speaker 2

However, we are pleased to report that so far in Q2, We have witnessed good momentum in revenue growth especially from developer services. Although the external macro environment was rocky During the Q1, we have not stopped making our organization more efficient. We carry on with Our strict cost management strategy and cautious hiring threatened our management structure and as a result, our overall the long run, which will also give us the space in a difficult environment to execute on our ambition. Here are some key financial results Then I am proud to share Royce net loss since 2019 Q3 at RMB15.2 million Lloyds adjusted operating expenses since IPO at RMB57.4 million. Lloyds operating expenses since IPO at RMB64.8 RMB64.8 million gross margin back to 70%.

Speaker 2

AR turnover days at 39 days. Before revenue balance has been higher than RMB100 1,000,000 for over 12 consecutive Quarter. Total customer number remains stable at 4,500 and 27%, up 1% year over year. Our effective cost optimization continued to earn Notice both financial results with the lowest net loss since 2019 Q3 of RMB15.2 million and adjusted operating expenses at our historically low since IPO of RMB57.4 million. We also maintained a very healthy gross margin of 70%.

Speaker 2

Now let me go through our different revenue streams. Development services revenue decreased 24% year over year, mainly due to the weakness in value added services, offset by the growth in subscription services. Subscription services revenue were RMB47.5 million, up 9% year over year, mainly fueled by increasing ARPU. Subscription services As our core business include J. PUSH, Analytics, UMS and other products and despite the external uncertain macro environment, we signed up many well known clients including but not limited to, Quanda Bank, Xunfeng, Saba and BYD.

Speaker 2

Going into Q2, we expect some major recovery in subscription services and we hope we will see double digit growth on a Q on Q basis. Value added services revenue were RMB8.0 million, decreased by 69% year over year, which was a result of weak advertising demand. We believe advertising related revenue will continue to be impacted by the Moving on to our products and services, We have seen strong growth potential and interest in the EngageLab platform that we launched during Q4 last year. We have implemented various improvements to other Products under EngageLab. Recently, EngageLab has established a reliable network of data centers in multiple regions around the world to ensure that customers can choose the storage location that better suit their business needs.

Speaker 2

These data centers meet the highest security standards and standards and have passed our rigorous certification and audit process. With the rapid growth in global data exchange, our customers have Increasing data security and comparison requirements. In addition to Singapol, EngageLab has now added more data center option for overseas U. S, California, Japan, Tokyo and South Korea, Seoul, UAE, Dubai, Brazil, So, Apollo and Australia Sydney. Customers can select 1 appropriate data center to store data for an application based on comprehensive consideration such as the location of their end user and regulations.

Speaker 2

We will continue to invest in technology innovation and global infrastructure building and are committed to providing our customers with the highest level of data security and Compliance Assurance. We are free to report that EngageNet has attracted numerous valuable overseas customers and generated significant revenue and ARPU in just a few months. Encouraging new contribution from overseas customers continue to I'll take those from domestic customers and we anticipate that our overseas business will be one of our Biggest Growth Drivers Going Forward. Our products have been well received by customers in multiple countries and regions, including the U. S, Malaysia, Thailand and Singapore.

Speaker 2

Notably well known companies such as BYD, Daxun Band and Media has become our valued customers. With this recognition from our customers, we remain committed to enhancing our products and services enable global developers to achieve high efficiency and cost effective user reach. In addition to other achievements this Quarter, we have launched our latest enhancement to J Push, the in app messaging function. Unlike notifications sent through external channel, Jiwani app message appear within the apps using pop up windows and floating bots to capture users' attention. This feature emphasis on user interaction and engagement, ensuring developers can curate and retain their most available users.

Speaker 2

While post notification bring user back to the app in app message guide user to interact with the app in a way That meets our expectation. With our app developer centric strategy and for our ongoing improvements and iterations of products Technologies, we will continue to improve and have mobile app developers answer their optional and Growth Demands and Provide Better User Experience. With that, I will now pass the call to Shannon, who will share more information about the

Speaker 3

Thanks, Chris. As Chris has mentioned before, we are facing external uncertainties during Q1 and our vertical application business was also challenged this quarter. Vertical application mainly consists of Financial Risk Management and Market Intelligence. Vertical application revenues decreased by 22% year over year. For both Financial Risk Management and Market Intelligence segment, revenues were negatively impacted and decreased by 20% and 5 Our Q1 revenue was impacted since many of our customers were not able to close contract on a timely basis due to the COVID Going into Q2, we have seen recovery in the revenue from both sectors already.

Speaker 3

Under the challenging environment in Q1 of 2023, we were still able to sign up various KA customers such as Huizhou in and VIP Shop, just to name a few. I'll now go through some of our key expenses and balance sheet items. On to operating expenses. We are on track in our operational goal to becoming More efficient company by centralizing our resources to focus on fewer but more important tasks. During Q1, adjusted operating expenses mark another all time low since IPO at 57,400,000.

Speaker 3

Our net loss has also narrowed down to $15,200,000 the lowest since Q3 of 2019. All three components within OpEx category recorded year over year and quarter over quarter reduction. In particular, R R and D expenses decreased by 21% year over year to $31,700,000 mainly due to lower headcount that reduced salary costs and associated share based compensation and a decrease in cloud costs and depreciation expenses as a result of improvement and optimization of our cloud platform. Selling and marketing expenses decreased by 28% year over year to $18,900,000 mainly due to the decrease in headcount by 31. G and A expenses decreased by 49% year over year to $14,300,000 mainly due to 8,400,000 Decrease in personnel costs, the $2,900,000 decrease in professional fee as a result of our strict cost management control strategy and a $1,800,000 decrease in bad debt provision as a result of our company wide concerted effort on strict financial control measures and adjusted EBITDA calculated as EBITDA excluding share based compensation, Reduction in forced charges impairment improved by 9% year over year to negative 7,500,000.

Speaker 3

On to the balance sheet. I will again share 2 very important KPIs that we closely monitor. We continue to maintain a healthy AR turnover days level at 39 days. Usually, Q1 is a slower quarter due Because of the Chinese New Year holidays, I'm glad to see that our persistent payment collection policy works effectively during the period. Secondly, one of the key financial KPIs for tracking the performance of SaaS Company It's a total deferred revenue, which represent cash collected in advance from customer for future contract performance.

Speaker 3

Again, ended quarter On a high note, at rmb133.8 million, and this is the 12th quarter our deferred revenue balance has exceeded rmb100 1,000,000. Healthy cash flow aside, the level of deferred revenue also signifies that our business is in great shape. Our customer has continued to buy our product and services quarter over quarter year after year, and we are Very pleased with the trending of this deferred revenue balance. Next, total assets were RMB396,400,000 as of March 31, 2023. This includes Cash and cash equivalent of $88,400,000 accounts receivable of $26,400,000 Prepayments and other assets of $33,700,000 fixed assets of $11,900,000 long term investment of $141,000,000 Group view of $37,800,000 and intangible assets of $22,300,000 resulted from a share of Sandclog acquisition in March 2022.

Speaker 3

Total current liabilities were at $238,000,000 as of March 31, 2023. This includes Short term loan of $5,000,000 accounts payable of $18,400,000 current operating lease liability of 18,200,000 Deferred revenue of $131,000,000 accrued liabilities of $65,200,000 Lastly, before I conclude, I'll give an update on the share repurchase plan. In the quarter ended March 31, 2023, we repurchased 194,000 ADS. Cumulatively, we have repurchased a total of 1,390,000 ADS during the start since the start of our repurchase program. And this concludes management's prepared remarks.

Speaker 3

We are happy to take your calls now.

Operator

Thank you. First question comes from the line of Kelvin Wang from Spiker Capital. Please go ahead.

Speaker 4

Good evening, management. Thank you for taking my questions. I would like to have 2 questions, if I may. Two questions related to financials. First of all, About OPEX, we note that the company continue to record historical low on your Both GAAP and adjusted OpEx, just wonder how did you do that?

Speaker 4

Did you make Further headcount reduction? If so, how will the reduce workforce impact on your business operations? And a related question is that do you expect to see further reduction in OpEx in the coming quarters? How low could that go? So that's the question related to OpEx.

Speaker 4

Another question is related to revenue. We saw a dip in revenue year on year quarter on quarter. Of course, management has already made a very good explanation on the reasons behind. So What we would like to know is going forward, what will be the revenue growth drivers? So two questions, one on OpEx, the other on revenue.

Speaker 3

Okay. Thanks for the call. This is Shannon. Let me try to answer your question. I guess from Financial perspective, we are very pleased to report that we did achieve the so called GAAP and non GAAP adjusted OpEx on a Low basis this quarter again.

Speaker 3

And as to how we do it, there are a couple of things that we have been doing well. First, our Kuin Cloud project was executed successfully, which means that we are able to reduce significant amount of depreciation from the server expenses. This is very important. Besides the expenses aside, as you know, over the past few years, we have been spending like RMB10 1,000,000 a year on servers. And with the Green Cloud project that we have done over the past year, We are no longer needing to spend such money.

Speaker 3

So for the servers that we're using right now, the cloud servers, and we only pay as we go, which means that We only have to incur expenses based on what we have consumed, and this also greatly improved our cash flow. And this is the first thing that we did. The second, the The thing that we have done on the reducing the OpEx is that we have implemented the strict cost control based management strategy over the past years. And both you can see, over the years, we have reduced the headcount. We have also looked at every single expenses that we have.

Speaker 3

Moving forward, we do not anticipate any further reduction or big reduction in our headcount, And we are pretty comfortable in terms of where we are in terms of headcount to continue our operations. And so this is the first question. I think you asked about how low can the OpEx go going forward. I think the short answer is, as I say, all expenses It's at a pretty optimum level right now, and we do not expect to have significant decrease in OpEx every quarter going forward. So this is a pretty optimal level that we think we can operate within the framework right now.

Speaker 3

And I think the second big question you asked is the dip in revenue and what are our revenue growth driver going forward. I think if you recap what Chris has said during the call earlier, we have seen a huge opportunity from overseas business, which is the English Lab Products. There are a couple of things that we have I would like to share with you. Based on the overall contract top line that we have Internal Research, about 15% to 20% of our total sales leads are now coming from overseas, which means that This coming back will be a big chunk of our revenue contribution because 15% to 20% of our sales leads are coming from overseas. And this is one of the metrics I'll share with you.

Speaker 3

The second is, for the new contract that we have signed by value, The percentage contributed by overseas customer has grown 3 times from 3% to 10% of the total contract value in Q1 2023, which means that the contract value has grown 3x over the past quarter. And this percentage we have seen In the Q2 of this year, which means the month of April May, the contribution percentage is continuing to improve. I guess with this trend, we believe that our overseas revenue will be the primary growth driver going forward. Having said that, what we have not taken our eyes off our bread and butter, which is the developer service. They are and will continue to be our major contributor for our stable cash flow and revenue in the future.

Speaker 3

I hope this answer your question.

Speaker 4

Yes, very clear. Thank you.

Operator

Our next question comes from the line of Brian Kinstlinger from AGP. Please go ahead.

Speaker 5

Great. Thanks so much. Just doing a follow-up to the answer you just gave on the revenue drivers. You said overseas has gone 3% of bookings to 10%. What products that you sell or services are most being bought by these overseas customers?

Speaker 5

Is it in CageLab? Or is it some of your other services?

Speaker 3

Hi, Brian. This is Shannon. Yes, those are 100% from EngageLab.

Speaker 5

Great. So I guess, If I understand correctly, EngageLab is a product that's helping customers choose data storage locations. Do you own the networks Or are these partners of yours? And then how are you acquiring customers for this product? That would be helpful.

Speaker 5

Thanks.

Speaker 3

No. Brian, the English Lab is the push notification that we help the customers in outside of China to do the Notification, the messaging. So it's nothing to do with the storage, which means that a customer in, say, like Singapore, they have an app, APP. They would like to reach out to their customers or users in Southeast Asia. We help them to do the push notification in Singapore.

Speaker 3

This is exactly what we are doing since 2021 in China, just that we replicate the product overseas.

Speaker 5

Okay. And then, you said you expected a recovery in subscription services. What's driving this recovery in your view? I suspect the environment remains challenging.

Speaker 3

Yes. I think there's a couple of things. One is simply because the Q1 was low season, that's a given. And right now, what we are seeing is customers are again, people are trying to be more cost efficient. They try to get the best view of their services.

Speaker 3

So they're more likely to outsource to us, which is one of their best partner in terms of During the push notification, so this is a kind of a change in the mindset of rather for them to invest a lot of money, people, engineers to do in house, Yes, we outsource to 3rd party livers. I guess, good numbers that I can share with you. Based on what we are seeing right now in Q2, We have the April May numbers in already. And based on this, the trajectory that we're looking at is The developer service subscription business, we expect to have a double digit growth in Q2 quarter over quarter. So you can see the numbers are looking good and people are buying our services.

Speaker 5

Yes. And then value added services really bottomed out. You mentioned and obviously the advertising market is quite challenging. I don't think that's changing right now. So what's the outlook for that business?

Speaker 5

Can it decline further if the market remains weak? Or how do you manage that business right now?

Speaker 3

Yes. Based on what we are seeing, no, the value added service remain to be fairly flat. We do not expect it to Have a good numbers going forward. At best, you try to be flat in the next quarter or so. Because if you look at what we have is, we have researched some of Bigger app player in China such as those like the likes of Tencent, Baidu and Weibo, All of them are recording quarter over quarter reduction in revenue for ad spending.

Speaker 3

So we are not any better. I think the overall environment or overall ad market in China has remained weak or has not recovered to previous good times.

Speaker 5

Okay. My last question is really a high level question. You said customers have been challenged to close deals still given COVID. Help paint a picture of what the market is today. I mean, that was the Q1, obviously.

Speaker 5

Here we are 2 thirds into the second quarter. Is COVID still a major challenge for you? And what are the main obstacles in China Enterprises are facing today?

Speaker 3

As far as COVID is concerned, lack of a better word, I think it's almost all over. People are not shutting down or work from home because of COVID anymore. And there's no Regulation or policy that workers must work from home or cannot come to work. So COVID per se is over. So what we are looking is right now is probably the recovery from the overhang of the COVID.

Speaker 3

Yes, COVID is over, that doesn't mean that The business operation is business activity is 100% back to where it was, but we do see recovery. As I said, the developer service Subscription business, we have seen more double digit growth quarter over quarter, so this is a very encouraging sign.

Speaker 5

Okay. Thanks so much.

Operator

Thank you. Thank you for the questions. At this time, now no further questions on the line. I'd like to hand the call back to Christian for closing remarks.

Speaker 1

Thank you everyone for joining the call tonight. If you have any further questions or comments, please don't hesitate to reach out to myself or anyone on the Aurora Mobile IR

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Aurora Mobile Q1 2023
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