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spk00: Ladies and gentlemen, thank you for standing by and welcome to the Aurora Mobile third quarter of 2021 earnings conference call. And at this time, all participants are in listen-only mode. And after the speaker's presentation, there will be a question and answer session. And to ask a question during the session, you will need to press the star and the number one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Mr. Rene van der Steen. Thank you. Please go ahead, sir.
spk03: Thank you, Annie. 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 Luo, Chairman and Chief Executive Officer, Mr. Fei Chen, President, and Mr. Shanlen Bong, Chief Financial Officer. Following their prepared remarks, all three will be available to answer your questions during the Q&A session that will follow. 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 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 or factors are included in the company's findings 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 will now turn the conference over to Mr. Luo. Please go ahead.
spk01: Thanks, René. Good morning and good evening to everyone on the call. Welcome to Aurora Mobile's first quarter 2021 earnings call. This is the first quarter where we have been operating under the pure SaaS business model since the beginning of 2021. We continue to see great business growth in the SaaS business, and I will go straight into our quarter results and share with you our business progress and key business metrics in the third quarter of 2021. Before I comment on our Q3 results, I would like to remind everyone that the quarterly earnings debt is available on our IR website for your reference. You may refer to the debt as we proceed with the quarter date. Let's begin our review with highlights of our key operating and financial performance for the third quarter of 2021. As a reminder, We completely accepted target marketing at the end of 2020, and our business is now 100% focused on the SaaS-based model, which includes developer service and vertical applications. For an effort-to-effort comparison, numbers present here exclude contribution from the legacy target marketing in the pre-year. In the first quarter, we have seen a steady and solid upward trend in our stock business, which is a result of our dedicated effort in building and growing them. Here is a summary of the solid results for Q3 2021. The number of paying customers increased to 2,729 from 2,320 a year ago, up 18% year-over-year. Revenues were maybe 19.5 million, up 38% year-over-year. Group gross margin was 74.4%, which is more than 1.5 times compared with 47% from a year ago. Gross profit was revenue being $167.4 million, up 48% year-over-year, and adjusted EBITDA was negative revenue being $16.1 million, a substantial improvement of 27% from a year ago, demonstrating a strong operating leverage. Total deferred revenue was about $100 million for six consecutive quarters, indicating strength in SaaS business growth. AR days continued to decrease to 39 days, indicating our disciplined credit granting and brought the majority of quality customers paying on time. Revenues from our SaaS business set another quarterly record high with 48% growth in developer services and 18% in vertical applications on a year-over-year basis. Our group margin has greatly improved from 47% a year ago to 74.4%, which was the result of our successful transition into the pure SaaS business model since the beginning of 2021. The strong gross profit growth of our SaaS business was mainly driven by revenue growth of 48% year-over-year. The backbone of our continuous revenue growth has been our relentless team effort and prioritization of innovation in developer services products. We always strive to provide solutions that exceed our customers' needs and requirements for continuous developer feedback and iterations. In this quarter, we are proud to share recent updates with you and innovations across various product lines. Our product development philosophy has always been to introduce widely applicable products and tools that are scalable and suitable for all industries. Then based on the needs and feedback from each specific industry vertical, we move on to address and offer solutions and services that can meet specific requirements of each user base in our target market. For example, how do we go deeper to raise customer satisfaction and fulfill their needs? Many of our development efforts in recent quarters have been focused on creating deeper customer engagement. In Q3, we launched a free version of our Core J Push product, featuring a brand new upgrade to the Hub function, whereby mobile app developers can easily integrate seven major mobile phone manufacturers and operating systems push channels into the app. including but not limited to channels such as Huawei, Xiaomi, Oppo, Vivo, and Meizu. Through this hub function, we are able to help mobile app developers significantly increase the overall notification delivery rate by 80% compared to those mobile apps who do not use this hub function, which sequentially improves the click-through rate of their apps. Mobile app developers no longer have to integrate each manufacturer's and operating system's channel on their own. By using our Hub function, they can easily integrate all of these seven major notification channels and manage all of the push messages on our G1 platform in one go. As of today, over 7,000 apps have already started using this new function. Over 45% of the new apps that use our JPush SDK have already integrated this function into their apps. This hot function marks a new milestone, helping developers greatly improve their push results with very simple and efficient integration steps, and cements our position as the leading push notification provider in China. As one of several newly introduced products in 2021, our vast products have generated much customer interest. With the booming demand in the short video industry, we have noticed that some industry verticals have evolved over the past few years and become even more dependent on the product range and scope of our vast service. During the quarter, one of the most renowned manufacturers in the smartphone industry started testing our vast products on their smartphone appliance intended for a wider role in the near future. As more and more screen displays become integrated into the smartphone of the appliance and devices, bringing out the right content on these screens has quickly become a vital way of keeping users engaged and in turn create better user experience. By providing short videos that are tailored, customized, and geared towards different user groups and displayed on different appliances, our Vaas product continues to satisfy customers' requirements and increase users' thickness and user retention time. We believe our Vaas product has Vaas market potential and applications going forward. In addition, we have recently launched our on-demand video cloud, Dianbo Yun, surface under the Vaas product lines. This new service provides app developers an opportunity to quickly integrate their app with video function. Once they have implemented our on-demand video cloud service into their apps, developers can enjoy the freedom and convenience to perform a streamline of actions, including upload, review, and create, manage, and play the videos on their own apps. This service fundamentally eliminates tedious and laborious process for those developers who want to manage their own videos on their apps. Within the short release period in Q3, we have already seen great customer interest and received many inquiries about this product. We have observed that this on-demand video cloud service has added great value to app developers and is part of our product development strategy to go deeper and to satisfy customers' specialty requirements and needs. By doing so, we can develop closer deals with our customers and become their long-term trust partners. Last but not least, another very exciting news that I want to share with you is that on November 17, our JValuefication and other customized services were officially launched on Huawei Cloud. The cooperation with Huawei Cloud demonstrates the industry-wide clients and trust we command for our robust technical capabilities and services. Currently, developers can easily purchase and experience our JValuefication service by simply logging into our Huawei Cloud account. In addition to jail verification, developers can also gain access to Jigwang's customized surface package on Huawei Cloud, which includes push notifications, instant messaging, traffic monetization, Jigwang Alliance, Jigwang VAS, and UMS, and the other products that help developers operate, grow, and monetize their applications. We believe that this cooperation with Huawei Cloud can benefit us by reaching out to more potential fee-paying customers. and will bring positive results in the near future. In fact, we have already signed a number of paying customers since this alliance started. Now I will turn the call to Fei, who will discuss the QoP performance in greater detail.
spk06: Thanks, Chris. Let me start the discussion on different revenue streams within the SaaS businesses. In third quarter 21, revenues from developer services reached RMB 64.7 million, a robust 48% growth on a year-over-year basis. The year-on-year revenue growth was the result of strong growth of 32% in subscription services and a very impressive 84% growth in value-added services. Subscription services revenues were RMB 39.8 million, an increase of 32% year-over-year, primarily driven by new customer acquisition. Apart from new customer acquisition, our continuous efforts in cross-selling various non-PUSH subscription products such as JVerification, JSMS, JAnalytics have increased our customer subscription uptake via multiple product lines. As a result, our revenue contribution of non-PUSH notification products increased to 43% from 31% a year ago. Non-PUSH notification products also achieved a higher ARPU of RMB 37,000, resulting in the overall ARPU for subscription services increasing by 13% to RMB 16.6 thousand, compared with RMB 14.7 thousand a year ago. New and renewed contracts of notable customers in the quarter include NetEase News, China's southern power grid company, Starbucks, McDonald's, and so on. Value-added services within developer services, which include revenues from DigiAlliance services and advertisement SaaS, achieved outstanding results, where revenues grew significantly by 84% year-on-year to RMB 24.9 million from RMB 13.5 million in third quarter 2020. The demand for our JG Alliance products has proven to be continuously strong since its introduction to the market. We expect this strong demand trend to continue into the future. On the supply side of JG Alliance, during the quarter we continue to grow this traffic pool as it is a vital part of our strategy to increase opportunities for monetization channels. The total number of apps within our network exceeded 390 apps compared to 344 in second quarter 2021, representing a 15% growth quarter over quarter. The total DAU within the network has stabilized at 180 million, same as the second quarter. As discussed in the last earnings call, there has been some delay in developers joining our alliance network and integrating our SDK due to the regulatory requirements that became their top focus during the quarter. However, we are seeing the ramp up of this integration period during the fourth quarter, which lays a solid foundation on the supply side of the equation and can in turn help us achieve a strong sequential revenue growth for the coming quarters. On the demand side, many program developers and app retargeting related demand continued to play a pivotal role by contributing to the majority of our JG Alliance revenues in third quarter 2021. During the quarter, other agencies contributed more than 50% of JG Alliance revenue stream, while the rest came from direct customers. Major customers of JG Alliance consisted of repeat customers and market leaders across many industry verticals. They include, but are not limited to, Weibo, Meituan, JD, Alipay, Taobao, Baidu, VIP Shop, and Travel Go. Now let's move on to vertical applications that cover financial risk management, market intelligence, and iZone products. These revenues grew steadily by 18% year-over-year, with the largest share of the growth coming from the financial risk management business. In the financial risk management segment, revenues increased substantially by 35% year-over-year with the help of the 37% growth in our pool. This quarter, we had another remarkable quarter with the highest revenues since the beginning of COVID-19 in the first quarter of 2020. The strong demand for our financial risk management products has paved the way for us to acquire new customers and retain many existing customers each quarter. New and renewed customers include the insurance financial 300 digitech our market intelligence product line recorded a slight three percent dip in revenue year-over-year due to the lackluster china adr investment environment in third quarter 2021 as many investors pulled out such china adr investment due to regulatory concerns nevertheless We expect the demand for this product line to recover in the current quarter and the quarter going forward. During third quarter 2021, we have signed renewed contracts with many large customers, including Himalaya, NetEase Media, Ali Entertainment, etc. And lastly, our iZone business has delivered a modest 5% revenue growth year-over-year. With that, I'll pass the call over to Shannon.
spk04: Thanks, Faye. I'll go through some of the key expenses and balance sheet items. Let's talk about operating expenses. The total operating expenses increased by 6% year-over-year to RMB 103.7 million. In particular, R&D expenses increased by 22% to RMB 55.5 million, mainly due to the increase in staff compensation as we continue to invest in our R&D department. improve IT infrastructure such as a higher bandwidth and cloud expenses to support the expansion of the SaaS businesses. Selling and marketing expenses increased by 5% to RMB29.4 million, mainly due to the increase in staff compensation and travel expenses. G&A expenses decreased by 22% to RMB18.8 million. mainly due to year-over-year reduction of RMB 6.9 million in bad debt provision due to our proactive and strict financial control measures. Adjusted EBITDA, calculated as EBITDA excluding share-based compensation, impairment of long-term investment and change in fair value of foreign currency swap contracts, improved by 27% year-over-year. to negative RMB 16.1 million from negative RMB 22 million in Q3 2020. For the third quarter of 2021, we delivered another set of solid financial results. For year-over-year comparison, the key highlights for this quarter include revenue of our SaaS businesses increased significantly by 38%, group gross margin improved from 47% to 74.4%, a direct result of Q3 2021 gross margin being 100% contributed by high-margin SaaS businesses. Operating expenses, however, increased by only 6%. As a result, our adjusted EBITDA improved by 27%, which continues to demonstrate the scalability of our business model. And this is the third quarter where we have delivered SaaS business only results and we are very pleased with the results we have achieved. We believe that the growth momentum of Q1, Q2 and Q3 this year will continue to bring more sound results in the coming quarters. Next, onto the balance sheet. I'll start with two very important KPIs that we closely monitor. Firstly, the AR turnover days decreased from 45 days in Q3 2020 to 39 days in this quarter. This was similar to the trend we have seen last quarter due to both the shift away from the legacy targeted marketing business to focus on SaaS businesses and the discipline credit granting policy and our focus on improving AR collection. Secondly, the total deferred revenue balance, which represents cash collected in advance from customer for a six consecutive quarter has exceeded RM100 million at quarter end. As of September 30, 2021, the balance was at RM119 million, up from RM111.5 million Q2 this year. Next, total assets were at RM627 million as of September 30, 2021. This includes cash and cash equivalent of RM281 million, accounts receivable of RM41 million, prepayments of RM13 million, fixed assets of $68.9 million, long-term investment of $165.6 million. Total current liabilities were at RMB 373.1 million as of September 30, 2021. This includes short-term loan of $105 million, accounts payable of $13.5 million, deferred revenue of $114.4 million, accrued liabilities of $95.1 million. Next onto business outlook. Based on the current available information, the company sees full-year 2021 revenue guidance to be in the range of RMB350 million to RMB360 million, representing growth of 36% to 40% year-over-year compared with last year, and our guidance for our full-year gross margin to remain above 70%. Please note that for meaningful comparison purposes, The prior revenue numbers used to calculate the growth percentage exclude revenue from the targeted marketing business. The above outlook is based on the current market conditions and reflects the company's current and preliminary estimate of the market and operating conditions and customers' demand, which are all subject to changes. Lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended September 30th, 2021, we did not repurchase any shares. As of September 30th, 2021, cumulatively, we have repurchased a total of 921,000 ADS since the start of our repurchase program. And this concludes the management prepared remarks. We are happy to take your question now. René, back to you.
spk03: Operator, please start the Q&A.
spk00: Thank you. Yes, as a reminder, to ask a question, you will need to press the star and the number one on your telephone. To withdraw your questions, please press the pound or hash key. Please stand by while we compile the Q&A roster. Once again, please press star one on your telephone and wait for your name to be announced. Once again, to ask your question, please press par 1 on your telephones. Thank you. Our first question is from the line of Brian Kinslinger of Alliance Global Partners. Please go ahead.
spk05: Great. Thanks for taking my question. First, can you comment on the pace of JG Alliance integrations? Is the pace picked up to the same pace prior to the discussions of new regulations, or is there going to be a gradual pickup and you still have a bit more to go before the pace returns to that rapid pace?
spk06: Hey, Brian. Hi, this is Faye. So in terms of the app, you know, the pipeline to join the GD Alliance, right, so we do see actually starting, you know, from the end of third quarter, beginning of the fourth quarter, you know, many apps before they were delaying the process has renewed the process, you know, started engaging with us. So we actually currently are seeing seeing a pretty decent pipeline. It will be a very strong pipeline. Not only some medium-sized apps, but also some very large apps who are in the discussion with us. So we do expect there's a decent number of DAUs going to be joining our network in the current quarter. So because of this, you know, this situation, this outlook, that's why it gives us, you know, confidence that, you know, we will be, you know, able to narrow our guidance range for the revenue, as you have seen, right? We've, you know, narrowed it to the up end. So that shows the confidence and the visibility we currently have.
spk05: Just a follow-up on that. Is the pace... fully recovered or is it partially recovered and you still have more to go as those apps improve their regulatory situation for their own apps?
spk06: I think it will be most of it has recovered. I would say 70-80%. Okay.
spk05: And then in terms of JG Alliance, talk about the mix of direct sales versus publishers and how you kind of rank these and see these going forward as growth drivers?
spk06: I think that the growth driver, you know, because actually the demand is always there, and the demand for our product actually, you know, that's not a bottleneck, as I previously shared with you in this commentary in previous calls. Actually, the bottleneck has always been on the supply side, So as long as there are more apps joining, more DAUs joining our network, we will be able to offer more impression, more exposure to the customers on the demand side. So that's the situation I want to emphasize again.
spk05: Okay. And lastly, can you talk about the early adoption trends with JG Video-as-a-Service products since launch, and how do you expect this to impact revenues over the near and long term? And then in terms of that, maybe go through the sales cycle. How long will prospective customers maybe test this product before purchasing?
spk06: Yeah, so in terms of JG vast products, right, so actually since its launch, you know, we are continuing to educate and explore the market. And we have discovered that demand actually is coming from a very diversified industry vertical, such as the financial institutions, the security houses, local services, transportation, entertainment. Many industry verticals, the customers, the app developers in those verticals express strong interests. As you have read the press release, we recently successfully signed up with a contract with the leading IoT manufacturer in China. This is a very big contract, close to a million RMB, versus traditionally, actually, the output for this product is about 100,000. Initially, for the video content, we appear on this IoT user's mobile app. And then you will appear on the smart devices. Think about the user case. When you wake up in the morning, go to the kitchen and start preparing your breakfast. When you are cooking, the big screen on your refrigerator will start showing your favorite short videos. So isn't this going to make your cooking more fun? All this is possible is because it is powered by JGVAS. So we think that this is what's going to happen in the future, and we think it's really exciting. I think the adoption across multiple industries are going to happen, not overnight, but we do see the trend. Actually, the demand is there.
spk05: So in the short term, there'll be a very small contributor to revenue, but as we look to maybe the second half of 2022... Does it become a catalyst to revenue growth, or is that even too soon?
spk06: That's what we are aiming to. Yeah, you are correct. In the short term, the revenue contribution is still relatively small, given the large base of our traditional products, the push services and the other related SDK tools, right? But for next year, actually, we aim to... have the sales force and also to drive strongly to promote to sell this product. So certainly that will be our key focus for next year for this vast product as well as the UMS product, these two new products.
spk05: Okay, thank you.
spk00: Thank you. We have our next question from the line of Ryan Roberts of Navis Capital. Please go ahead. Your line is open.
spk02: Good evening, guys. Can you hear me? Yes, Ryan. Great. So my question is really kind of more on the financial performance. So first question is kind of on gross margin for SaaS. I know it moves around a little bit from quarter to quarter. It looks like it's softened a little in this quarter. I'm curious if you can give us some color on why that might have been. And I've got a question about kind of the outlook after that.
spk04: Yeah, I guess the margin did not move as much as what we had expected. It did drop a bit, but I guess there's a functionality of some of the apps that we brought in for the JGO Alliance. We managed to get more than some of the share of revenue. So in that case, we are giving them some of the benefits of our gross margin. So we do not expect that to be a continuous trend. So we expect the margin to be above 70% nevertheless. So as far as the margin is concerned, we do not see that as a meaningful dip.
spk06: Yeah, so we aim to keep our gross margin above 70%. At least that's our near-term target.
spk02: Gotcha, gotcha. Okay, and that sounds kind of like a – I guess a base case. I think in the past several quarters, it's been certainly well above that. So that's, I guess, how I'm looking at that. And really kind of – as we sit here now in November looking into – actually, we're almost in December here. How are we thinking about next year? It sounds like you have JG Alliance devices coming back into the pool. Your previous analyst asked about signups, and you mentioned that you're back on to a normalized pace, which I realize there are vagaries there with what developers want to do or not. But how are we thinking about the year ahead? And maybe on JG Alliance, can you update us on the overall ad loads as you go into the end of the year, and also eCPM? How are those metrics kind of shaping up?
spk06: Yeah, so Ryan, so actually our team, different business units, currently are still undertaking the process to, you know, to finalize the next year's budget, right? So, you know, we usually have, you know, use two approach, bottom up, and a top-down, okay? So the management, the top management, you know, people sitting here have a goal we want to achieve for next year, right? But also we need to look at, you know, how the people in the field, they look at, you know, their confidence level and what they see in terms of the demand and micro-environment, et cetera. So we need to take everything into consideration and then, you know, come up, set a goal for different business units. And then we come up with the guidance for the entire company. So currently, we are still in the process of doing this. So I think by next earning call, we should be able to give you confidently a concrete number of what we are aiming to achieve. And in terms of the add load, right? So AdLoad actually is determined by a number of factors. One is we talked about this a number of times. Basically, the product called the SST 2.0, which enables the multiple exposure per DAU. So actually, talk about this product. Actually, in the third quarter, it continued product iteration. We made some progress in the third quarter. which actually helped improve our add loads a little bit. The next magnitude is not yet to our satisfaction. Currently, the improvement is less than 10% overall. And the progress of the transition is a little bit slower than we expected. And we expected the full migration of existing apps into SST 2.0. will be delayed to the first quarter of 2022. Because not only the product needs to be robust enough, but also we need a Salesforce and app traffic operation team working together to identify each app's usage scenario that is suitable for multiple exposure. For example, we need to determine when a user enters what page and conducts what action. then it is appropriate to send another in-app message. So after such information has been analyzed, we need to have the conversation with the app developers one by one to tell them this is how we think about it and why they should add this functionality. And all this actually takes time. So our goal is to have the ad load exposure for DAU from this perspective to improve by close to 20% overall by end of first quarter. And other than this SST 2.0, the improvement which will improve the ad loads, actually there are other ways we can improve the ad load as well, such as we are making technical improvements which can give ads more chances to display. For example, we are storing some backup ads. If the first impression doesn't work, doesn't happen, and then the backup ad can show up, which will certainly help improve the ad load. And this is a technical improvement. And also, we are identifying and eliminating some unnecessary lost opportunities in displaying the ad due to certain rule settings. So there are multiple things we are currently undertaking to try to improve the ad load. So I think if one or two of these things we do well, I think the ad load will continue to see upward trend. So in terms of the... What's the question you asked? That's the third question.
spk02: The other question was on eCPM.
spk06: OK, eCPM in the quarter actually remains stable during the quarter. And the eCPM actually is pretty much determined by the CPC and the CTR. And that's actually determined by how well we fine tune the algorithm. And certainly, you know, we actually spend a lot of other efforts on other things, and this improvement on eCPM actually, you know, we are trying to have a plan, but that was not our whole focus in the third quarter.
spk02: And maybe if you could share some, because I know the advertising industry in China has been a bit touch and go, I guess, in the last several months in terms of demand and kind of where that's coming from, the education track down. Can you give us a sense of where you are vertical-wise, kind of what's meaningful right now, and kind of maybe if you could share a little bit of kind of outlook on demand, what you're seeing from them, that'd be helpful.
spk06: Yeah, so, you know, actually, recently, I a number of internet platforms reported earnings. As we all know, they were affected by macroenvironment and the regulation and supervision of key advertising industries, which directly impacted their customer churn, such as what we have seen in the education industry, or had their budgets reduced on the client side, such as the gaming industry. For JG Alliance, we don't have much coverage in those two industries. Our main customers are mini program advertisers, app retargeting advertisers, and advertisers in the fields of finance and e-commerce. So customer budgets in those areas are relatively stable. So actually, we are not seeing any weakening in terms of the demand. from the demand side. So we do not really see the demand will have an impact on our JG Alliance growth going forward.
spk02: Gotcha. Okay. So it sounds like churn then, I guess, sounds pretty low. And I think you mentioned the last analyst asked about the mix between agents and kind of your direct sales. Any kind of churn there? I guess color you can share.
spk06: You mean the agents, advertising agents versus direct?
spk02: So yeah, you went into that I think in the last question, sorry, question earlier. But in terms of any churn in terms of like the advertisers, I guess ultimately you know who is advertising through the platform. Do you see any changes in overall composition of who's buying ads? You mentioned mini programs and so on.
spk06: Yeah, so the core actually, the top advertisers are still similar, the same guys, right? The players basically who are the mini program operators. and the players who are, you know, for app retargeting purpose, such as companies such as, you know, Taobao, Alipay, right, and Meituan, you know, and Weibo, you know, these customers remain our top customers. And, you know, they are very, very stable. And other than that, actually, we are continuing, you know, to penetrate, you know, into... into new industries such as the car industry. So we acquired some customers in that quarter. And also we continue to leverage our ad agencies. So if you look at the revenue mix between the ad agency and direct sales, actually last quarter it was about 50-50. But this quarter, actually, the ad agency contributed around 55% of the JJ Alliance revenues. So it's actually, you are seeing the pickup in terms of the revenue mix by the ad agencies. And these ad agencies, they bring in fresh, brand new customers to add customers to our platform, which is a good thing. So I think overall, you know, the customers are stable and we are not seeing any meaningful change by any large customers.
spk02: Okay, great. Thanks, Bay. Yeah, sure.
spk00: Thank you. Our next question is from the line of Brian Kinslinger of Alliance Global Partners. Please go ahead.
spk05: Thanks for taking my follow-up. First of all, on the gross margin of 70%, again, you have been quite a bit higher for the last three quarters from there. Will you see that much pressure over the next few quarters to get you as low as 70% or is that, as the previous gentleman just said, is that just sort of the base pace long-term of where you'll be?
spk04: Yeah, I think we have been operating the business with margin of 74, 75%. No, we do not expect the margin to dip in Q4. Okay.
spk06: And then... Yeah, so Brian, actually, let me clarify. Actually, we constantly, you know, actually say that we will keep our gross margin above 70%, right? So that's our base case. And above 70%, you know, between 70% and 75%, certainly the USC fluctuation probably between quarter and a quarter. But, you know, that is normal, right? Because, you know, some business segments, such as the JG Alliance, you know, the margin, you know, sometimes is actually, you know, decided by how we cook the deal with the app developer, the supplier, the traffic supplier, right? But certainly, you know, we aim to keep the growth margin above 70%, you know, so that's our goal.
spk05: Okay. And then as we head into next year, talk about the seasonality and how much of an impact the Chinese New Year has on each of your businesses?
spk06: Yeah, so if you look at our past several years, Chinese New Year seasonality, certainly the first quarter is the weakest quarter for us. Not only for us, actually for most of the Chinese companies as well. First quarter because there's a Chinese New Year and basically at least two weeks Nobody is working, right? So basically, nobody is spending money. So that certainly will impact the demand for JG Alliance, the business. But for the other business, because it's subscription-based, right? So, you know, it's highly stable, highly visible. But that says, you know, overall, for the company as a whole, you should see, you know, certain... magnitude of seasonality in the first quarter, i.e., there will be sequential revenue decline by a little bit in the first quarter.
spk05: But what you're saying is the SDKs and the vertical applications, both of those will be a little bit more flattish.
spk06: SDK will be okay, but vertical application, there's one product called Financial Risk Management, financial risk management, actually our end customer, their end demand is consumer-related demand. So because people will borrow money less, you know, so during that time, actually, if their end consumer demand decreases, you know, their usage to use our service will decrease as well because it's a volume-based pricing model. So that will be impacted as well. Other than that, you know, our substitution-based business and our, you know, the industry insights, you know, those business should be stable.
spk05: Great. Thank you.
spk00: Thank you. We have a follow-up question from the line of Ryan Roberts of Navis Capital. Please go ahead.
spk02: Hi, thanks for taking the follow-up. I had a question actually thinking about next year. And again, I realize you're in the planning process, so on and so forth. Again, but here we are finding ourselves knocking on December's door. Looking at the R&D spend, which has been kind of chunky compared to last year, most that's headcount. What are you thinking about next year in terms of headcount and kind of expense allocations? I know for this year things have been kind of tightly controlled, but as you move into next year, what are you thinking about? And maybe what are some of the key concerns that you're weighing looking into the year ahead?
spk06: Yeah, so for next year, actually, Actually, you know, in terms of the OPEX and also the spending, right, particularly R&D, you know, one thing is clear. We are not going to try to increase much about the R&D expense, okay, and we are not going to increase much about the R&D headcount, okay, and we think there's a lot of room to improve the efficiency, okay, not only from the human resource perspective, but also from the IT resource perspective. We are currently basically doing the analysis to see where we can improve the efficiency. This improvement needs to happen next year, so that will basically you will not see much increase in the expense of R&D.
spk02: Understood. Okay. And maybe if I could turn back to something you mentioned earlier in the call. Sorry, maybe Wei Dong. I think maybe you mentioned it. Kind of the Huawei kind of news. For maybe some of the investors kind of on the call, that are not super familiar with the landscape of the cloud providers in China and maybe what that actually means transformationally for your company, what that gives you exposure to. Maybe talk a bit around what you're thinking about the impact of the Huawei deal. Who that opens your software SDKs and stuff, who that opens you up to. in terms of the overall market share perspective. Maybe you could give us some insights on what that could mean for you.
spk01: So recently, our JVarification and other customized services were officially launched on Huawei Cloud. So basically, the cooperation with Huawei Cloud I can demonstrate the industry, why Accra and Trust we come out for our robust technical capability and service. So basically developers can purchase and experience our jamification service by logging in their Huawei Cloud account on the Huawei Cloud platform. So we can launch the alliance a couple of months. So we already see a few contracts from this alliance. So next, Huawei Cloud plans to build an SM one-stop integration service platform with us, primarily to package Aurora, our developer service product, into one solution and host on its cloud platform. So this will give developers the ease of one-stop purchase experience. So at the same time, we will provide systematic training for what we call sales teams to get a better understanding of our operating regarding this channel and work closely with them to generate more sales opportunities. In addition, we will also collaborate with them on marketing activities, such as offline events targeting targeting the financial industry. Of course, the huge developer group base that we own will also provide a great commercial value for Huawei Cloud itself. We are also actively discussing how we can embed Huawei Cloud Surface into our commercial solutions in the near future and promote them to our various companies. So that's what we see so far.
spk02: Let me say it in Chinese. I think the point is that Huawei is a platform, not a Huawei mobile user. It doesn't have much to do with them, right? Because your goal is to access Huawei, right? It doesn't have much to do with that mobile user, right?
spk01: Yeah, that's not about their manufacturer customers. I don't know Huawei Mobile about their Huawei Cloud. That's the business customer, right? So Huawei actually is growing really, really faster. So it's similar like Ali Cloud.
spk02: Right, right. Yeah, I just wanted to understand. Again, the difference was like this is, I guess the Huawei Cloud infrastructure provider as opposed to any kind of relationship with the Huawei smartphone brand. So I guess there's maybe some potential misunderstanding about Huawei Cloud versus Huawei smartphone and blah, blah, blah.
spk06: That's right. We are not collaborating with Huawei smartphone. We are only collaborating with the Huawei Cloud business. Basically, they have the 2B business, right? So we have the 2B business. So that's a customer synergy. Yeah, so basically, I give you a number.
spk01: Huawei Cloud has around 2,000 sales in all of China. We only have one.
spk02: I think they're like number two in China, right? In terms of cloud sales.
spk01: Currently, it's number two or three, yeah, say Tencent Car or Huawei Car. But I think Huawei Car, yeah, yeah, yeah, that's number two or three.
spk02: Gotcha. Okay, thanks. That's what I wanted to clear up. Thank you very much. Appreciate that.
spk00: Thank you. Once again, for those who wish to ask a question, please press star and then number one and wait for your name to be announced. For your questions, please press star and then number one. Thank you, Annie.
spk03: 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 all.
spk00: Thank you, ladies and gentlemen. That concludes the conference for today, and thank you for participating.
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