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spk03: Ladies and gentlemen, thank you for standing by and welcome to the Aurora Mobile Third 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 need to press star 11 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, Rene Brangustan. Thank you. Please go ahead.
spk04: Thank you, Desmond. 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 irgguang.cn. On the call today are Mr. Wei-Dong Luo, Chairman and Chief Executive Officer, Mr. Shan-Len Bong, Chief Financial Officer, and Mr. Guan Yan Chen, General Manager. Following their prepared remarks, they 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, except as required under applicable law. With that, I will now turn the conference over to Mr. Luo. Please go ahead.
spk01: Hi, Rene. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2022 First Quarter Earnings Call. Because I comment on our Q3 results, I would like to remind everyone that quarterly earnings debt is available on our IR website. You may refer to the debt as we proceed with the call today. While we continue to navigate through macroeconomic opportunities, Q3 was a solid quarter for performance and financial measurements in most of our business lines. We are also actively expanding our footprint into overseas markets and prioritizing opportunities for future growth. I will expand into more details in the later section of my remarks. We continue our cost control initiatives in the third quarter and are very pleased with our progress. Here is a snapshot of some of the great key results that we want to share with you. Lowest operating expenses for the past 16 quarters since Q4 of 2018 at RMB 80 million, down 23% year-over-year. Lowest net loss since Q3 of 2019 at RMB 20.7 million, narrowed down by 43% year-over-year. Adjusted EBITDA at negative RMB 6.7 million, significantly improved by 58% year-over-year. Deferred revenue balance is the highest in the history of the company at RMB 139.1 million. Total customer numbers up 71% year-over-year to 4,665. AR turnover days significantly improved by 8 days from 46 days in Q2 2022 to 48 days despite the tough business environment. I'm sure everyone on the call has heard and read about the massive layoffs announced by one of the world's largest social media tech companies recently. Looking back, our decision to start restructuring and cost-cutting in the second half of 2021 could not have been wiser. Yet we've been slow and only make such a decision now, we would be in a much worse financial situation. Back to these key financial highlights in these and past few quarters, I am very proud that our team has stayed together and executed brilliantly to help the company become leaner and more efficient. I am confident that we will come out of these difficult times earning stronger. This quarter We record another quarter with a historically low operating expenses level of RMB 80 million, down 23% year-over-year. Our net loss is also the lowest since Q3 of 2019 at RMB 20.7 million, narrowed down by 42% year-over-year. One of our main goals going into Q4 and financial year 2023 is to ensure we continue to operate efficiently where we organically grow our revenue faster than expenses. Another encouraging sign is from the revenue perspective. As we saw sequential revenue growth in most of our business lines this quarter, well, we are anticipating more recovery in growth. It is still too early to call this a definite trend. However, the sequential growth in our business lines is a major positive sign for us. As the global and domestic economies are currently going through some major transitions and downtrends, we look at sequential revenue growth as more indicative of the health of our business and possible directional changes. With that said, we want to see the sequential trends continue for several more quarters before we are comfortable saying the business is back to normal. Now, let me go through the different revenue streams within the group. Developer services revenue increased by 3% quarter-of-quarter to $57 million, which was mainly due to the increase in subscription services. Year-over-year developer services decreased by 12%, mainly due to the weakness in value-added services, offset by the growth in subscription services. Subscription services revenues were only $41.7 million, up 9% quarter-over-quarter and up 5% year-over-year. Subscription services are core business line, include J-PUSH, Analytics, UMS, and others, are products and services that help app developers and enterprises to improve their operational efficiency. The increase in ARPU contributed to the growth in revenue, and we managed to grow our customer base, signing up several well-known and sizable customers, including Lili's Games, Starbucks, Mihoyo, and Kenyi Games, just to name a few. Value-added services revenue decreased quarter-over-quarter by 9% and year-over-year by 39%, to remain be 15.3 million. As we saw market demand further pressures and advertisers continuing to cut back budgets, this trend is quite visible and similar to those reported by larger advertisement platforms. Direct customers contributed more than 75% of J.J. Alliance revenue stream while the rest came from third-party agents. Major customers of JG Alliance consisted of repeated customers and market leaders across many industry verticals. Key customers include Baidu, Alibaba, Tencent, Tencent Chart, and Sohu. Although we believe that these fractures are temporary and the advertising market is expected to bounce back, we are taking actions and continue to prioritize our resources on projects that will drive the most growth. With the launch of our AD mediation platform in Q2, over 3 million DAUs and over 40 apps have joined the platform, and we are anticipating more DAUs to join our platform in Q4. Services enabling traffic monetization through our ADs have become an important driver during the development of the mobile internet ecosystem. As the major mobile app mediation platforms have spread overseas in established markets such as AppLavi, IronSource, and MoPAP, we are also striving to help the developers to rapidly grow and improve monetization efficiency. While we put some emphasis on coping with the near-term uncertainties, we consistently stay focused on our long-term strategy of expanding our business overseas since we believe that going overseas is becoming a substantial growth strategy for Chinese companies. After several months of our team's effort, in mid-October, we launched our overseas messaging service platform, Engagelab, allowing developers to reach global users efficiently and effectively. This is a major milestone for us, since we can now help both the Chinese companies and overseas-based companies to carry out refine and accurate user reach and engagement at low cost with higher message delivery rates and conversion rates. I invite you to visit our website at www.engagelab.com to see for yourselves. At present, EngageLab provides five major services, including app push, web push, email services, SMS service, and WhatsApp Business API. and is exploring additional messaging channels in overseas markets. Based on the current volume and nature of inquiry from both Chinese companies going overseas and overseas-based companies, we are very pleased with our progress. We believe we have a set of tools and services that meet the market demand, and we are in the best possible position to tap into the growth in this segment of the market going forward. We will provide regular updates on this basis in the future quarters when the numbers are material. With that, I will now pass the call to Changlin, who will share more information about the vertical applications and other aspects of our performance.
spk05: Thanks, Chris. And now let me provide some callers on the vertical application business. In this quarter, we have seen such sequential growth in vertical application revenue, which is very encouraging. Vertical applications mainly consist of financial risk management and market intelligence. Vertical application revenue increased by 12% year-over-quarter and decreased by 9% year-over-year. In the financial risk management segment, Revenue increased by 20% quarter-over-quarter to RM14.4 million and decreased by 7% year-over-year. The financial risk management quarter-over-quarter revenue growth was mainly due to the increase in customer numbers as demand has shown good growth over the quarters. While our financial risk management team has pushed continuously to establish deeper connection with our key customers, it has also discovered more opportunities with our existing client base. Also, our ongoing improvement and additions to the product mix have helped us signing up many more new clients and renewed customers, including but not limited to Du Xiaoman, Haier, Xiaofei Jinrong, Ronghui Jingke and Guangfa Bank. Our market intelligence services deliver strong revenue growth, up 23% quarter-over-quarter and up 24% year-over-year to RMB 8.9 million. During this quarter, we have further cemented our strategy to retain key customers from both PRC and overseas market. And we sign up numerous well-known customers including but not limited to Morningstar, Tsinghua University, iQiyi, KIPP, and Vivo. I'll now go through some of our key expenses and balance sheet items. On to operating expenses. As Chris mentioned earlier, tightening expenses control has been the theme over the past few quarters. And by doing so, we have achieved very solid results to tie us through these tough times. and we have had another record low quarter for operating expenses at RMB 80 million, down 23% year over year. All three components within operating expenses category has recorded year over year reduction. In particular, R&D expenses decreased by 31% to RMB 38.3 million, mainly due to lower headcounts that reduced salary costs and associated share-based compensation, and a decrease in cloud costs as a result of improvement and optimization of our cloud platform. Selling and marketing expenses decreased by 18% to RMB 24.2 million, mainly due to the decrease in our headcount by 42, and the marketing expenses and salary costs decreased accordingly this quarter. G&A expenses decreased by 7% to RM17.6 million, mainly due to salary costs which is the result of a reduction in headcount. Adjusted EBITDA improved by 58% year-over-year and by 16% quarter-over-quarter respectively to negative RM6.7 million. Our company-wide effort to optimize headcount and operating expenses has continued to pay off and yielded good results for us. And below are the highlights that I want to recap. In this quarter, we have had the lowest operating expenses for the past 16 quarters since Q4 of 2018 at RMB 18 million, decreased 23% year-over-year. We had the lowest net loss since Q3 of 2019 at negative RMB 20.4 million, narrowed down by 43% year-over-year. As mentioned, adjusted EBITDA at negative 6.7 million, improved by 58% year-over-year. And we had the lowest adjusted operating expenses, which represent the cash component of OPEX since Q1 of 2019, at RMB 66.9 million, decreased by 24% year-over-year. And onto the balance sheet, I'll again share two very key KPIs that we closely monitor. Firstly, the AR turnover days decreased from 46 days in Q2 2022 to 38 days. Our disciplined accounting policy and cash collection effort ensure a timely collection of our accounts receivables. And this is very important to mitigate the exposure to bad and doubtful debts during these particularly challenging times. And secondly, one of the key financial KPIs for tracking the performance of STARS companies, the total deferred revenue, which represents cash collected in advance from customers for future contract performance. We recorded the highest balance in the history of the company at RM139.1 million. Another angle on this matter, our deferred revenue balance has continually growing and exceeded RMB 100 million at quarter end for the 10 consecutive quarters. And this demonstrates the excellent health condition of our financial KPI under the SaaS business. And next, total assets were RMB 445 million as of September 30th, 2022. and this includes cash and cash equivalent of 108 million, accounts receivable of 32 million, prepayments and other current assets of 32 million, fixed assets of 42.9 million, long-term investment of 142.9 million, goodwill of 37.8 million, and intangible assets of 25.2 million resulted from the SendCloud acquisition in March 2022. In total, current liabilities were at $238.4 million as of September 30, 2022. This includes accounts payable of $17.5 million, deferred revenue of $132.7 million and accrued liabilities of $88.2 million. And lastly, before I conclude, I shall give a quick update on the share repurchase plan. In the quarter ended September 30th, 2022, we repurchased 27,000 ADS and cumulatively we have repurchased a total of 948,000 ADS since the start of our repurchase program. And with this concludes the management prepared remarks. We're happy to take the question now. Operator, Thank you.
spk03: As a reminder, to ask a question, you need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. One moment for the first question. First question is from the line of Brian Kinslinger from Alliance Global. Please proceed.
spk00: Hi there. This is Shervin. I'm from Brian. Thanks for taking my questions. I just want to start with, now that we're halfway through the fourth quarter, how is it looking so far compared to the third quarter? Should we be expecting similar results, or are you seeing any new trends that you can allude to?
spk05: Hi, this is Shannon. Thanks for the question. Yes, based on the trajectory that we have seen to date, Q4 should be able to achieve a sequential growth again.
spk00: um in this quarter so things are start to pick up and we do see sign of recovery for most if not all of our businesses thank you um another question you guys mentioned um the abundance in deferred revenue so which which segments if any do you see unusual strength in and which do you see unusual weakness if any and why do you think that is do you think this is affecting your growth in any way?
spk05: If you peel off the layers in terms of the makeup of deferred revenue, they are mainly coming from the subscription business and vertical application. Because the value-added services are mainly advertising-based, so those customers are unlikely to prepay. So the main focus or the component of deferred revenues are coming from subs and vertical application. So we do not see any weakness in terms of where it's coming from. But I guess based on the balances that has been growing, we have no concern. And we do see strength on this quarter over quarter.
spk03: Great. Thank you so much. That's all I have. Thank you for the question. As a reminder, if you'd like to ask a question, please press star 11. One moment for the next question. We have the questions from the line of Kelvin Wong from Spica Capital. Please proceed.
spk02: Hi, management. Many thanks for taking my question. I would like to have three questions, if I may. The first one is related to the launch of EngageLab for overseas customers. Could you provide more insights on the EngageLab platform for us? That's the first question. And the second question, we have noticed that you have started cooperating with BYD for its business in Europe. So we'd love to hear more about the details on that. So the second question is related to your cooperation with BYD. And finally, a more financial-related question. We noticed that you have done a good job in managing the op-eds. So appreciate if you could share with us how this op-ed is trending in the next few quarters. Also, if you can, could you also share with us when are we expecting the company to turn positive at just EBITDA?
spk05: Sure, Kevin. Let me recap your question. First one, you're asking about the Engage Lab for our overseas customer, right?
spk02: Yes.
spk05: Okay. Actually, this is part of our plan to facilitate all our Chinese companies going overseas. We have launched this Engage Lab just to ensure that the Chinese companies can carry out the refined and accurate user reach overseas with our low cost and high efficiency rate that we can offer. If you look at our Engage Lab, actually we are committed to offering omnichannel messaging solution to global enterprise and developers. As we have mentioned in our press release, at present, EngageLab provides five major services, including app push, web push, email service, SMS services, and WhatsApp. We are at the moment exploring additional messaging channels in the overseas market as well. Besides the Chinese companies venturing overseas, We believe our EngageLab is also well-suited to overseas-based developers who have the need to reach their customers in a more efficient and effective way. Probably I can give you some colours in terms of where we are. Up until recently, we have signed up more than 15 overseas-based customers with many more in the pipeline. We believe that this strategy to put our resources in EngageLab for overseas customers or for Chinese companies going overseas is the right one and definitely will deliver positive results in the near future. And I hope this answers your question. And if I look at my notes... Okay, sure. And the second question we have is with regards to BYD in Europe and that's one of the press releases that we have made recently. I can give you some background in terms of the cooperation. So this is in late, I think it's late September, we have entered into this agreement with BYD for them to launch their services in Northern Europe, in particular in the country of Norway, where they have delivered more than 1,000 pure electric SUV in Norway. So leveraging on our messaging cloud solution, So we are able to help BYD effectively carry out their user reach in that particular market and improve their messaging experience for their users. So apart from the so-called messaging delivery system, we believe that Chinese companies face various security compliance requirements, especially in Europe, where GDPR is very stringent. So I believe our solution is well catered for Chinese-based companies going overseas and in particular with our experiences in stable and quality messaging and data compliance competency. I think we believe we are the service provider of choice without any doubts. And I guess with this project with BYD, we think that it will open more doors for us in securing more similar contracts overseas. Do look out for our future press releases in this matter. And Kevin, what was your third question?
spk02: Okay, the third question again, two things. One is about the trend, the coming trend of your OPEX, because you've done a very good job in managing the OPEX over the past few quarters. So we'd like to hear from you about the trend of OPEX in the coming few quarters. And secondly, very straightforward, when are we going to expect the EBITDA to turn, adjusted EBITDA to turn positive?
spk05: Sure, sure. That's a tough question. I guess based on the financials that we have released for the past few quarters, you have seen we have proactively controlling our operating expenses over the past four to five quarters, and we have made really good progress. As mentioned by Chris and myself, for the third quarter this year, we have the lowest operating expenses for the past 16 quarters. We have the record low net loss since Q3 of 2019. Our adjusted EBITDA continued to improve by 58% year-over-year. I must say that all these achievements are by no means easy nor straightforward. It was all due to our team's effort to execute this cost reduction plan continuously quarter-over-quarter. Probably as you are aware, our cost control initiative is an ongoing process. And the operating expenses perspective, we believe we are at a pretty optimized level now. But still, internally we are challenging all departmental heads to keep the company's expenses at the lean and the more effective level. And having said that, I think there could be some unforeseen events at this moment that might potentially kill the scale. overall global macroeconomic uncertainty. At this point we do not give any specific timing as to when we will turn positive for our adjusted EBITDA. I guess so long as we keep our operating expenses at the optimal level and we believe that when the economy recovers and in turn revenue continues to grow and turning adjusted EBITDA positive is the only natural cause of event. That's my answer to your question, Kevin.
spk02: Okay, very clear. Thanks.
spk03: Thank you for the question. At this time, there are no further questions from the line. I would like to hand the call back to Rene for closing remarks.
spk04: 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. Ladies and gentlemen, you may now disconnect your lines.
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