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spk02: Ladies and gentlemen, thank you for standing by and welcome to Aurora Mobile's second quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press dial 11 on your telephone. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, René Brackenston. Thank you. Please go ahead, sir.
spk03: Thank you, Amber. 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. Shannon Bong, Chief Financial Officer, and Mr. Guangyang 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 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 would like to turn the conference over to Mr. Luo. Please go ahead.
spk06: Thanks very much. Good morning and good evening to everyone on the call. Welcome to Aurora Mobile's 2022 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. Our Q2 results were largely conditioned by the turbulence from the impact of the widespread resurgence of COVID-19. Several of our businesses were adversely affected as numerous cities were shut down between April and June. Despite the overall economic slowdown and the resurgence of COVID-19, we have seen some recovery in our business starting in July. As we mentioned on our Q1 earnings call, we have taken the necessary steps and initiative to proactively address upscale and strengthen our management and optional capability to navigate through these tough times. Continuing the efforts started in the past quarter, we shaved off more operating expenses this quarter into main areas. Firstly, we further reduce salary cost as we streamline our workforce. This is important as salary cost is one of our biggest cost components and we need to make sure we are operating at the optimum level with the greatest efficiency. Secondly, we closely and properly look at every single expense, from external technical support to bandwidth for fees. We have made consistent conscious efforts to search for better deals or replace new vendors in order to reduce the expense level where possible. At this juncture, I would like to take a moment to thank everyone in our company for their contribution in these important cost-cutting initiatives. All these efforts have been positively reflected in the Q2 financial performance. Here are the highlights of our important achievements. Lowest operating expenses for the past 14 quarters since Q1 of 2019 at RMB $87.7 million, down 1.7% year-over-year. Lowest net loss since Q3 of 2019 at RMB $24.4 million, narrowed down 1.7% year-over-year. Adjust EBITDA and net development bid 8 million, significantly improved by 40% year-over-year. Highest level of net cash inflow from operating activities since Q4 of 2020. Total customer number up 79% year-over-year to 4,709. AR days remain at a healthy level of around 46 days despite the tough business environment. Total default revenue was about RMB 100 million for the non-conceptive quarters. Let me continue with the different revenue streams within the group. Developer services revenue was down 10% year-over-year to RMB 55.2 million, which was mainly due to the decrease from value-add service, while our subscription service record stable 2% year-over-year growth. Subsequent subscription service revenue will be $48.3 million, up 2% year-over-year. Our subscription service, which includes J-Push, Analytics, UMS, and others, are products and services that help developers and enterprises to improve their operational efficiency. Demand for our subscription service is relatively strong and less impacted by the general sentiment of the macroeconomy. Despite a very tough operating environment during the quarter, we managed to grow our customer base and sign up several well-known and sizable customers, including China Everbright Bank, Hire Qingdao, Tiger Broker, and China Merchant Security, just to name a few. One key milestone in subscription service that I would like to share with you is our overseas business expansion. In Q2, our overseas email deliveries surpass those in mainland China. This is a great testament to the quality of our products and services, along with our ability to expand our business beyond our shores. We do see overseas expansion as one of our next key growth drivers. With our suite of core products, from push notifications to emails, I believe we are ready and will see overseas growth opportunities in the near future. Value-added services revenue decreased by 28% to revenue of $16.9 million, which is in line with what we expected last quarter, as the overall ad market has been relatively weak this quarter. Direct customers contributed more than 60% of JG Alliance's revenue stream, while the rest came from third-party ad agencies. Major customers of JG Alliance consisted of repeat customers and market leaders across many industry verticals, key customers, including BAT, JD, and VIP.com. With all the changes and uncertainty surrounding us, we are not deterred nor are we sitting on our laurels. We are more committed than ever to further emphasize and fine-tune our products and technology as we believe a strong and solid foundation can benefit the company in the long term. Next, I would like to update you on our products, and particularly innovations. Since the launch of our app mediation platform in the beginning of June, over 2 million DAUs and more than 20 apps have joined our platform, with more than 150 apps in the pipeline. We see great potential in our app mediation platform, and as we shared on the last call, overseas players, such as APB Loving, MoPAP and IronSource with the similar and proven business models have thrived in this field by helping app developers to grow and monetize. Our app mediation platform enables one-stop SDK-based access to mainstream app platforms such as Shanshanjia, Tencent, Youlianghui, and Kuaishou. And at the same time, it can also quickly access more than 70 other high-return demand-side platforms. As a service provider with extensive experience in the mobile internet industry, we have the niche and we believe we are in great position to help mobile app developers complete the closed loop of development, operation, and monetization, and achieve sustainable business success. To enable our customers going global to access more overseas messaging channels, in August, we signed a cooperation agreement with WhatsApp, the world's leading private messaging giant. This global cooperation represents a breakthrough in advancing our overseas business and enlarging our business ecosystem. Under this cooperation, WhatsApp is now embedded as one of the channels within our overseas messaging cloud solution. which was created to empower Chinese enterprises to expand in the overseas market with omni-channel intelligent messaging services. I am also very excited to share some updates from our core product, JPush. We have recently released our new customer management feature for VIP Push customers. Users of our service now can easily select target users and send promotional and customized push messages to their end users. without having to go through the software coding process. According to various research reports, QuickRate will largely improve when sending the dynamic and customized campaign push messages to end users, rather than just sending the same generic broadcasting message to everyone. This new feature is another meaningful add-on to our comprehensive series of tools, along with our Smart Push function, which helps the developer perform the push-to-push analytics. As you see, we were very productive this quarter and met the necessary product improvements and innovations despite the tough business conditions. We believe that only when we have superior products that market demand can we continue to strive and come back even stronger after the current slowdown. I am confident that we are fully equipped and ready for the Thais to train. With that, I will now pass the call over to Shan Nian, who will share more about the vertical applications and other aspects of our performance.
spk05: Thanks, Chris. And now let's move on to vertical application that consists mainly of financial risk management and market intelligence. Vertical application revenue decreased by 25% year-over-year. mainly due to the impact of COVID-19, which resulted in a dip in the demand and logistical obstacle in contract signing. In the financial risk management segment, revenue decreased by 22% year-over-year to RM12 million, mainly due to 1. The slowdown in economy which resulted in lower demand for our services. Delays in contract signing as several several major cities were locked down. We are simply not able to mail or deliver contracts to customers for their execution. Nevertheless, some existing key account customers in the financial vertical such as San Euling, Suke, Ma Sang Siao Fei and We Bank continue their consumption of our services during the quarter. As an update, in early Q3 of this year, we have signed up many other new customers including but not limited to Shanghai Xiaojin, Shanghai Yingxin Chuanghe, Zijin Baoxian and Shuke. Our market intelligence services revenue decreased by 9% to RMB 7.3 million and we saw similar trend in market intelligence services as well. Despite the slowdown in Q2, our team still managed to sign many well-known customers including Zihu, Mihayu, and Weizukeji. So far in Q3, we have brought on board many key account customers such as Morningstar, Keep, and Cimalaya. I'll now go through some of the key expenses and balance sheet items. Onto operating expenses. As Chris mentioned earlier on, we have viewed some of the best results since Q1 of 2021, when we completed our transition to pure SaaS model as a result of our effective control initiative. Operating expenses decreased by an impressive 17% year-over-year to RMB $87.7 million, and that is the lowest OPEX since Q1 of 2019. All three components within the OPEX category have recorded year-over-year reduction. In particular, R&D expenses decreased 25% to RMB $40.8 million, mainly due to lower headcount that reduced salary costs and associated share-based compensation. Selling and marketing expenses decreased 14% to RMB $23.3 million, mainly due to the decrease in marketing expenses this quarter. G&A expenses decreased 1% to RMB 23.6 million, mainly due to lower salary costs. Our adjusted EBITDA improved 40% year-over-year and 2% quarter-over-quarter respectively to negative RMB 8 million. Although this was another very challenging quarter, our decision and company-wide effort to tightly control and reduce expenses has clearly paid off. This positive impact has been reflected in the financial statement and I would like to share with you the following. We have recorded the lowest OPEX in the past 14 quarters since Q1 of 2019. Lowest net loss since Q3 of 2019 at negative $23.4 million. Adjusted EBITDA at negative $8 million, improved by 40% year over year. We have the highest level of net cash inflow from operating activities since Q4 of 2020. And we have the lowest adjusting operating expenses, which represent the cash component of OPEX since Q1 of 2021. Now on to balance sheet. I'll share two very important KPIs that we closely monitor. Firstly, The AR turnover days have maintained stable at 46 days this quarter compared to 46 days last quarter. Our disciplined accounting policy and cash collection effort ensure timely collection of our ARs. Secondly, the total deferred revenue balance, which represents cash collected in advance from customers, exceeded RMB 100 million at quarter end for the 9th consecutive quarter. As of June 30, 2022, the total deferred revenue was at a historical high of RM137.7 million. Next, total assets were at RM48.7 million as of June 30, 2022. This includes cash and cash equivalent of RM112 million, accounts receivable of RM35.1 million, prepayments and other current assets of $34.2 million, fixed assets of $49 million, long-term investment of $140 million, goodwill of $37.8 million, intangible assets of $26 million. Total current liabilities were at $227 million, accounts payable at $19.2 million, deferred revenue at $129.7 million. accrued liabilities of $78.2 million and we repaid the short-term loan of $150 million in April. Next on to business outlook. Although we are still facing uncertainty from the pandemic, going into Q3, we are seeing some exciting growth from our business lines and our cost management initiative continues to produce positive results that I want to share with you. Based on the current information, we anticipate the developer service subscription service revenue of Q3 2022 to achieve close to double-digit growth both quarter-over-quarter and year-over-year. For vertical application revenue, we are also expecting solid quarter-over-quarter growth. For value-added services, which we have mentioned earlier, the overall market will take time to stabilize before revenue can return to historical level. And with the anticipated growth in revenue and conscious cost spending, barring any unforeseen events, we are looking to achieve a break-even adjusted EBITDA balance for Q4 of 2022. And please note that the above outlook is based on the current market condition and reflects the company's current and preliminary estimate of the market and operating conditions and customer demand, which are all subject to change. And lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended June 30, 2022, we did not repurchase any shares. And as of June 30, 2022, cumulatively, we have repurchased a total of 9,000 to 1,000 ADS since the start of our program. And this concludes the management prepared remarks. And we're happy to take the question now.
spk02: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you need to press star 1 1 on your telephone. Please stand by while we compile the question and answer roster. Once again, that's star 1 1 for question. Our first question comes from the line of Brian Kinslinger from Alliance Global Partners. Please ask your question, Brian.
spk00: Great. Thanks for taking my question. First, can you talk about on the subscription side with the lockdowns, have you been able to deliver and get renewals for agreements signed? I see you've increased sequentially subscription revenue, but still below the fourth quarter, so I'm curious. an update on that and maybe talk about churn and how that's changed given the market conditions.
spk05: Yes, Brian. This is Shannon. If you compare to Q4, we did have a few of the private cloud projects that we completed. So in comparison, the Q2 numbers was a bit low. But having said that, the lockdown has lesser impact on sufficient business because majority of them are renewal and renewal contract might not have the impact resulted from the logistical obstacle that we talked about earlier on that we are not able to deliver the contracts. So for subscription business we think we are on the right track and based on the numbers it did show it that way. So we are fairly comfortable with the subscription business at this stage.
spk00: So you're still not able to deliver them? Is that what you're saying? I know you said that last quarter, or you are able to deliver those agreements.
spk05: Yes, we are for subscription business. That's why the revenue has shown up year over year and quarter over quarter growth.
spk00: Okay. And then I guess what I'm a little bit confused on is that the market conditions are still challenged from an economic standpoint, and we hear from a COVID standpoint a little bit too in China, obviously. So talk about what the drivers to growth are. You mentioned a couple of double-digit growths sequentially. How have you been able to do that? And talk about, from a demand perspective, given those conditions, how it's changed.
spk05: I think you can peel up. There are two ways to look at this. If you look at the value-added services or the financial risk management, those are more closely tied with the overall economy. So if you look at the ad spending, I'm sure you have read like Tencent, you have everybody else in China facing the problem that advertisers are not spending as they used to be. So this is very much tied to the economy. On the other hand, if you look at a subs business, they are less impacted by business because the fact that economy is slowing down, you are unlikely to spend less on push. So those are less resilient to the impact of the economy. So that's why we are trying to say is we still see good growth coming from the sub business because it's less impacted by the economy.
spk00: Got it. Okay. And then maybe touch on SendCloud. What was its contribution in the quarter? Which of your business segments is that reported in and how has that been performing in the current conditions?
spk05: It is reported that revenue is under sub-business, so it's under subscription, and it's contributing about 5 to 6 million RMB per quarter. And the numbers are growing. It's growing, I guess, for the fact that we are able to cross-sell some of our customers to buy their business, to buy their services. And secondly, as we have mentioned, Our overseas email delivery has surpassed China, so there's a huge demand for their services, for 10-clock services. So they are doing pretty well.
spk00: Yes. And lastly, good job with the operating expenses. Is this about the level of expenses we should see going forward? Will we see further declines as maybe some of them were done mid-quarter? How should we think about OPEX going forward?
spk05: I think we are pretty much at that level. I do not foresee any spike going forward. If anything, it will be maintained at that level or lower.
spk00: All right. Thank you.
spk02: All right. Thank you. Our next question comes from the line of Kevin Wong from Speaker Capital. Please ask your question, Kevin.
spk04: Good evening. Thank you for taking my question. I have one question. I noticed that since last earnings call, the company has taken a number of actions on going global, such as releasing the overseas messaging cloud and establish cooperation with WhatsApp. So can the management share more on the company's overseas strategy and maybe give us some highlights in the company's overseas business development overall.
spk05: Sure, sure. Thanks for the question. And you're right, we have been taking steps to expand our overseas business during Q2. If you look at it, since the beginning of June, we have released our... There are a couple of things that we are doing right now. In beginning of June, we have released our overseas messaging cloud solution to serve Chinese enterprise international expansion. And this is one of the growth drivers for majority of the Chinese companies these days. And also by integrating our multiple messaging products such as jPush, SMS, email, UMS and other messaging products, our overseas messaging cloud solution focuses on the integration and management of multiple channels. So therefore, the users, they will be able to use our product more efficiently. And also, our overseas channel solution has already integrated the platform such as WhatsApp that Chris talked about earlier on. And with that, we are looking to even to incorporate the others such as Facebook Messenger or TikTok going forward. And also with this, we are helping the Chinese enterprise who seek international expansion to build closer and more efficient connection with their users overseas. And this company seeking overseas expansion face very different market conditions and evolving data compliance, network environment, and software ecosystem. Therefore, I think we are in the right space to help them to expand overseas and through that we are able to seize the opportunity to have our overseas growth revenue too. So this is my response to your question.
spk04: Okay, very clear. Thanks.
spk02: As a reminder, to ask a question, please press dial 11 on your telephone. Thank you. There are no further questions. I'll now turn the conference back to René for closing remarks.
spk03: Thank you, Amber. Thank you, everyone, for joining our call tonight. If you have any further questions or comments, please don't hesitate to reach out to the IR team. This concludes the call. Have a good night. Thank you very much.
spk02: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
spk01: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
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