Aurora Mobile Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 31, 2023

There are 6 speakers on the call.

Operator

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 a 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, Rene Vaguestaine.

Operator

Thank you. Please go ahead, sir.

Speaker 1

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 are Mr. Weidong Guo, Chairman and Chief Executive Officer Mr.

Speaker 1

Shan Nenbon, 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 21E of the Securities Exchange Act of 1934, as amended and as defined in the U. S.

Speaker 1

Private Securities Litigation Reform Act of 1995. These forward looking statements are based upon management's current expectations 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. Securities and Exchange Commission.

Speaker 1

The company does not undertake any obligation to update any forward looking statement as a result of new information,

Speaker 2

Thanks, Renee. Good morning and good evening, everyone. Welcome to Alarm Mobile's 2023 Second Quarter Earnings Call. Before I comment on our Q2 results, I would like to remind everyone that the quarterly earnings debt is available on our IR website. You may refer to the debt As we proceed with the call today, coming off from our seasonal slow Q1 quarter, we managed to achieve a few good results Overall, we did see sign of recovery on most of the business lines During the quarter, however, they are not back to the level a year ago.

Speaker 2

During Q2 of 2023, we see a few things right. Firstly, we continue to expand our subscription business with the help of our EngageLab products offering overseas. I will share more on our Engagement business at the later part. Secondly, Our value add to shelf base business record impressive with sequential revenue growth. Thirdly, our vertical application business record solid growth.

Speaker 2

Last but not least, we continue to control our expenses throughout the organization. With these as the Backdrop, here are the good financial results that I would like to share with you. Total revenue grew Tobel presents quarter over quarter. Gross profit grew quarter over quarter to RMB47.7 million. Lloyds adjusted operating expenses since IPO at RMB54,600,000.

Speaker 2

Royce operating expenses since IPO at RMB64.1 million AR turnover days at For the 2nd phase improvement year over year and quarter over quarter, the further revenue balance above RMB 100 and Now let me go through our different revenue streams. Development services revenue decreased 6% year over year, mainly due to the witnessing in The value added services offset by the 6% growth in subscription services. However, development services revenue Grew solid by 15% quarter over quarter, while both subscription and value added services Have a record sequential revenue growth. Subscription show facing revenue were RMB40,500,000, up 6% year over year, mainly driven by increasing ARPU. Similarly, we record revenue growth of 8% quarter over quarter With the growth in HABO between the quarters, some of the notable new and renewable renewable customers in this quarter include but not limited to Related adage adjusted revenue of RMB11.5 million decreased by 32% year over year, which was a result of a weak advertising demand.

Speaker 2

However, we did manage to record a good sequential revenue growth of 45% quarter over quarter. This was mainly due to our ability to capture 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. Next, let me give you some updates on our overseas EngageLab product. As I shared in the pre quarter earnings release, we now have the data center across the global catering for customers in different regions and continents.

Speaker 2

As we expand our footprint globally, we have signed up more international customers. Our investment in technology innovation Building global infrastructure has paid off. As of now, we have global customers coming from 12 different countries and regions, 1 reliable and stable service delivery 2 strengthened data security and compliance Free local data center across the world. Let me share some other impressive metrics here in Q2. Our EngageLab business segment signed contract value was at 21% of the total new contract value for the group.

Speaker 2

This number has grown 3 times between the quarters showing great momentum. In addition, We have also seen great overseas e mail and attendance volume growth. In Q2, the total overseas e mail request volume was at 3,300,000,000 representing 4.2 tons of our domestic e mail request volume. Overseas e mail and SMS request volumes have record 19% and 19% growth between the 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 expansion strategy that we have started a year ago.

Speaker 2

I believe we will have the benefit of this overseas effort in the near future. With that, I will now pass Over to Xu Xianlin, we will share more information about our vertical application and other aspects of our financial performance for this quarter.

Speaker 3

Thanks, Chris. Just to recap, Vertical Application mainly consists of Financial Risk Management and Market Intelligence. In this quarter, Vertical Applications recorded revenue growth on both year over year and quarter over quarter basis. For Risk Financial Risk Management, revenue grew year over year and quarter over quarter. This was positively impacted due to ARPU growth between the periods.

Speaker 3

In Q2 of 2023, we have seen customer consumption or purchase of our services increase, thus pushing the ARPU quarter over quarter. Apart from customer increase their consumption, we managed to sign up more customers such as Weizhong Minhang, Ping An Xiaofei Jing Rong, Haiya Xiaofei Jing Rong, Zhongxing Xiaofei Jing Rong. As for Market Intelligence, the revenue remains stable year over year and quarter over quarter. I'll now go through some of our key expenses and balance sheet items. Onto operating expenses.

Speaker 3

I'm again very pleased to share with you that in Q2 2023, we have yet Another record low quarterly OpEx at RMB64.1 million. For year over year comparison, OpEx decreased by 27%, where all three categories of OpEx being Research and R and D, S and M and G and A all 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 a 42% year over year improvement in adjusted EBITDA When the revenue dropped by 4% year over year, we strive to continue to tightly monitor and control our OpEx now and going forward. I'll now go through the individual OpEx category.

Speaker 3

In particular, R and D expenses decreased by 26 Percent year over year to RMB30.2 million mainly due to lower headcount debt, reduced salary cost and associated share based compensation And a decrease in depreciation expenses as a result of us no longer needing as many service due to our ongoing cloud initiative. Selling and marketing expenses decreased by 14% year over year to RMB20 1,000,000 mainly due to the decrease of headcount by 30. G and A expenses decreased by 41% year over year to RMB13.9 million, mainly due to a RMB2.5 1,000,000 decrease in personnel cost and $5,300,000 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.

Speaker 3

I will again share 2 very important KPIs 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 shortened 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 Secondly, one of the key Financial KPI for tracking and the performance of SaaS Company is a total deferred revenue, which represent cash collected in advance from The balance continues to be at high level of RMB137.3 million.

Speaker 3

And this is the 6th consecutive quarter where our deferred revenue balance exceeded RMB130 1,000,000. We continue to sign up new and renewal customers where they prepaid their fees in advance. This again really improved 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 $81,100,000 accounts receivable of $34,000,000 Prepayments and other current assets at $31,100,000 fixed assets at $10,100,000 long term investment of 140,400,000 goodwill of 37,800,000 and intangible assets of 20,900,000 Resulted from the Sandcla acquisition in March 2022.

Speaker 3

Total current liabilities were at 235,800,000 as of June 30, 2023. This include short term loan of 5,000,000 Accounts payable of $22,200,000 current operating lease liability of 7,300,000 Deferred revenue of $135,400,000 accrued liabilities of $65,800,000 And lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended June 30, 2023, we repurchased 443000 ADS. Cumulatively, we have repurchased a total of 1,830,000 ADS since the start of our repurchase program. And this concludes management prepared remarks.

Speaker 3

We're happy to take your call now.

Operator

Thank you. Our first question comes from Calvin Wong with Spica Capital. Your line is open.

Speaker 4

Thank you for taking my question. I would like to have 2 questions, if I may. The first question is related to your financials. Actually, it is great to see that your financials are recording Continuous improvement every quarter. Like last quarter, we saw sequential increase in revenue, sequential decrease It's in OpEx and Sequential narrowing in negative adjusted EBITDA.

Speaker 4

So, the question is very 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 So could management share more about the progress and how management is looking at this business And it's growth path.

Speaker 4

So, the first question is related to adjusted EBITDA. The second one is related to Engage Let's call back.

Speaker 2

Thank you.

Speaker 3

Sure. Sure, Calvin. This is Shannon. Let me take your call. Yes, you're right.

Speaker 3

Your observation is Spot on. Yes, the financial KPI, be it 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.

Speaker 3

I think we need to moving customers Moving into more customer or getting more customer 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 6 or 8 quarters In the past year or 2. And the question you asked, based on our current trajectory, We are cautiously optimistic that should everything goes according to our plan, we should be able to Record positive adjusted EBITDA in Q4 of this year.

Speaker 3

But I guess, I still have to put a disclaimer. This is our best current estimate and is subject to market conditions. Nevertheless, I think should but there is still a possibility that we could Turn adjusted EBITDA positive in Q3 should everything goes according to plan or earlier than what we expected. So we'll see how we trend in Q3. And the second question you asked about the EnglishLab.

Speaker 3

Yes, I think you have heard what Chris, I said, we are very pleased with the progress with our 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 gives our overseas customer a great option to choose how and where they want to store their data that better suits their security and compliance needs. And of course, ensuring our service delivery is utmost important.

Speaker 3

We need to make sure that our services meet or even exceed customer expectation. We need to address all our customers' concerns 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 quality high quality services to all our customers around the globe. And also I was I'll give you an update on the latest I guess from based on the deck you have seen, our customers are 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.

Speaker 3

So So I guess you can see our services are moving into new territories quarter over quarters. 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.

Speaker 4

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

Speaker 3

Thank you.

Operator

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

Speaker 5

Great. Thanks so much. The early success you're having overseas sounds great. I'm wondering if you can quantify The revenue impact during the Q2 and maybe put some context into how you expect this to ramp overseas in terms of revenue?

Speaker 3

Hi, Brian. This is Shannon. Right now, the contribution is not material as yet. But probably as you know, based on our business model, one contract that we signed, the revenues only contribute 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 3x from Q1.

Speaker 3

So you can see 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 2, when the revenue contribution is material enough, we'll make the disclosure.

Speaker 5

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

Speaker 3

Not the value. Yes. We're not in a position to disclose the value of the contract yet.

Speaker 5

Great. 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?

Speaker 3

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

Speaker 5

But in the But if overseas wasn't material in the Q2, what was the factor that drove higher ARPU in the Q2?

Speaker 3

Yes. It's not materially as yet, 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 the major contribution is coming from overseas, the ARPU growth.

Speaker 5

And then How much of the sequential revenue growth in value added services was the 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?

Speaker 3

Sure. I would say majority of the value added services revenue growth is from the 6/18 Festival. So if you look at going forward, in China, I think there are 2 big so called big online e commerce festival. 1 is the 618 And the other one is double 11 in Q4. So having said that, which means that Q3 will likely to be a Slower season compared to Q2 and Q4.

Speaker 5

Got it. Great. And lastly, while you guys have done a great job in managing expenses, The gross margin, was it a multiyear low during the Q2? What were the factors that drove that? And is that more of an anomaly?

Speaker 5

Or is it more of the new baseline for the company? Thank you.

Speaker 3

No, it's not a baseline. If you look at what we have in based on our current Q3 Estimate the gross margin is going to come up. It's going to be higher than 65%. That is 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 the quarter Because the SMS business or revenue tend to have a lower margin compared to other SaaS business because we have a Kind of like a fixed cost that we need to pay to telcos.

Speaker 2

Great.

Speaker 3

For everything that SMS that we sent.

Speaker 5

Okay. Thank you.

Operator

There are no further questions at this time. I'd like to turn the call back over Renee for any closing remarks.

Speaker 1

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.

Speaker 1

Thank you.

Operator

This does conclude the program. You may now disconnect.

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Aurora Mobile Q2 2023
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