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spk03: Ladies and gentlemen, thank you for standing by. Welcome to Aurora Mobile first quarter 2023 earnings conference call. At this time, all participants are in 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 call over to your host today, Christian Arnel. Thank you. Please go ahead, sir.
spk02: Thank you, operator. Hello, everyone, and thank you for joining us today. Aurora's earnings release was distributed earlier today and is available on the IR website at ir.jiguang.cn or through Newswire Services. On the call today are Mr. Wei Dongluo, Chairman and Chief Executive Officer, Mr. Shannon Bong, Chief Financial Officer, and Mr. Guangyan Chen, General Manager. Following their prepared remarks, they will be available to answer your questions during the Q&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 filings with the USSEC. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under applicable law. With that, I would now like to turn the conference over to Mr. Luo. Please go ahead.
spk01: Thanks, Christian. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2023 First Quarter Earnings Call. Before I comment on our Q1 results, I would like to remind everyone that the quarterly earnings debt is available on our website. You may refer to the deck as we proceed with the call today. Despite the challenging macro environment, we successfully conclude the first quarter of 2023 with business and social activities slowly recovering during COVID following a shift in COVID policy towards the end of 2022. Some of our businesses were impacted to varied degrees. However, we are pleased to report that so far in Q2, we have witnessed good momentum in revenue growth, especially from developer services. Although The external macro environment was rocky during the first quarter. We have not stopped making our organization more efficient. We carry on with our strict cost management strategy and cautious hiring, threaten our management structure, and as a result, our overall expenditure have continued to drop year over year and queue quarter over quarter. We believe these efforts will help us improve our financial performance in the long run. which will also give us the space in a difficult environment to execute on our ambition. Here are some key financial results that I am proud to share. Lowest net loss since 2019 Q3 at RMB 15.2 million. Lowest adjusted operating expenses since IPO at RMB 57.4 million. Lowest operating expenses since IPO at RMB 64.8 million. Gross margin back to 70%. at 39 days, before revenue balance has been higher than maybe 100 million for over 12 consecutive quarters. Total customer number remains stable at 4,527, up 1% year-over-year. Our effective cost optimization continues to yield noticeable financial results, with net loss since 2019 Q3 at RMB 15.2 million and adjust operating expenses at a historically low since IPO of RMB 57.4 million. We also maintain a very healthy gross margin of 70%. Now let me go through our different revenue streams. Developer services revenue decreased 24% year-over-year mainly due to the weakness in value-added services, offset by the growth in subscription services. Subscription services revenue will remain be 47.5 million, up 9% year-over-year, mainly fueled by increasing output. Subscription services, as our core business, include J-Push, Analytics, UMS, and other products. And despite the external and 13-micro environment, we sign up many well-known clients including but not limited to Guangda Bank, Shunfeng, Zabra, and BYD. Going into Q2, we expect some major recovery in subscription services and we hope we will see double digital growth on a Q of Q basis. Value-added services revenue will remain be 8.0 million, decreased by 69% year-over-year, which was a result of weak advertising demand. We believe advertising-related revenue will continue to be impacted by the unfettering and volatile microeconomic environment. Moving on to our products and services, we have seen strong growth potential and interest in the Engagelet platform that we launched during Q4 last year. We have implemented various improvements to other products under Engagelab. Recently, Engagelab has established a reliable network of data centers in multiple regions around the world to ensure that customers can choose the storage location that best suits their business needs. These data centers meet the highest security standards and have parts of rigorous certification and audit process. With the rapid growth In global data exchange, overseas customers have increasing data security and compliance requirements. In addition to Singapore, Engagelab has now added more data center options for overseas customers to deploy the push notification product, AppPush and WebPush. This includes China, Hong Kong, Germany, Frankfurt, US, California, Japan, Tokyo, and South Korea, Seoul, UAE, Dubai, Brazil, Sapporo, and Australia, Sydney. Customers can select one appropriate data center to store data for an application based on comprehensive considerations such as the location of their end user and regulations. We will continue to invest in technology innovation and global infrastructure building. and are committed to providing our customers with the highest level of data security and compliance assurance. We are pleased to report that Engagelab has attracted numerous valuable overseas customers and generated significant revenue and output in just a few months. Encouragingly, new contributions from overseas customers continue to outpace those from domestic customers, and we anticipate that our overseas business will be one of our biggest growth drivers going forward. Our products have been well received by customers in multiple countries and regions, including the US, Malaysia, Thailand, and Singapore. Notably, well-known companies such as BYD, Dachshund Bank, and Media have become our valued customers. With this recognition from our customers, we remain committed to enhancing our products and services to enable global developers to achieve high efficiency and cost-effective user reach. In addition to other achievements this quarter, we have launched our latest enhancement to JPUCH, the in-app messaging function. Unlike notifications sent through external channels, G1 in-app messages appear within the app using pop-up windows and floating bots to capture users' attention. This feature places emphasis on user interaction and engagement, ensuring developers can cultivate and retain their most available users. While push notifications bring users back to the app, in-app messages guide users to interact with the app in a way that meets their expectations. With our app developer-centric strategy, and for our ongoing improvements and iterations of products and technologies. We will continue to improve the app and help mobile app developers answer their optional and growth demands and provide better user experience. With that, I will now pass the call to Shannan, who will share more information about the vertical applications and other aspects of our performance.
spk04: Thanks, Chris. As Chris has mentioned before, we are facing external uncertainties during Q1. and our vertical application business was also challenged this quarter. Vertical application mainly consists of financial risk management and market intelligence. Vertical application revenues decreased by 22% year over year. For both financial risk management and market intelligence segment, revenues were negatively impacted and decreased by 20% and 5% respectively year over year to remain be 11.8 million RMB 7.2 million. Our Q1 revenue was impacted since many of our customers were not able to close contract on a timely basis due to the COVID outbreaks. Going into Q2, we have seen recovery in the revenue from both sectors already. Under the challenging environment in Q1 of 2023, we were still able to sign up various KA customers such as Huizhou Bank, and VIP shop, just to name a few. I'll now go through some of our key expenses and balance sheet items. On to operating expenses. We are on track in our operational goal to becoming more efficient company by centralizing our resources to focus on fewer but more important tasks. During Q1, Adjusted operating expenses marked another all-time low since IPO at $57.4 million. Our net loss has also narrowed down to $15.2 million, the lowest since Q3 of 2019. All three components within OPEC's category recorded year-over-year and quarter-over-quarter reduction. In particular, R&D expenses decreased by 21% year-over-year to $31.7 million. mainly due to lower headcount that reduced salary cost and associated share-based compensation, and a decrease in cloud cost and depreciation expenses as a result of improvement and optimization of our cloud platform. Selling and marketing expenses decreased by 28% year-over-year to $18.9 million, mainly due to the decrease in headcount by 31%. G&A expenses decreased by 49% year-over-year to $14.3 million, mainly due to a $8.4 million decrease in personnel costs, a $2.9 million decrease in professional fee as a result of our strict cost management control strategy, and a $1.8 million decrease in bad debt provision as a result of our company-wide concerted efforts on strict financial control measures. And adjusted EBITDA, calculated as EBITDA excluding share-based compensation, reduction in forced charges, impairment, improved by 9% year-over-year to negative $7.5 million. On to the balance sheet. I will again share two very important KPIs that we closely monitor. We continue to maintain a healthy AR turnover days level at 39 days. Usually Q1 is a slower quarter due because of the Chinese New Year holidays, but I'm glad to see that our persistent payment collection policy works effectively during the period. Secondly, one of the key financial KPI for tracking the performance of SaaS company is the total deferred revenue, which represent cash collected in advance from customer for future contract performance. Again, ended quarter on a high note at RM133.8 million. And this is the 12th quarter our deferred revenue balance has exceeded RM100 million. Healthy cash flow aside, the level of deferred revenue also signifies that our business is in great shape. Our customer has continued to buy our products and services quarter over quarter, year after year. And we are very pleased with the trending of this deferred revenue balance. Total assets were RMB 396.4 million as of March 31, 2023. This includes cash and cash equivalent of RMB 88.4 million, accounts receivable of RMB 26.4 million, prepayments and other assets of RMB 33.7 million, fixed assets of RMB 11.9 million, long-term investment of RMB 141 million, Goodwill of $37.8 million and intangible assets of $22.3 million resulted from a share sent cloud acquisition in March 2022. Total current liabilities were at $238 million as of March 31, 2023. This includes short-term loan of $5 million, accounts payable of $18.4 million, current operating list liability of $18.2 million, deferred revenue of $131 million. accrued liabilities of $65.2 million. Lastly, before I conclude, I'll give an update on the shared repurchase plan. In the quarter ended March 31, 2023, we repurchased 194,000 ADS. Cumulatively, we have repurchased a total of 1.39 million ADS since the start of our repurchase program. And this concludes management prepared remarks. We're happy to take your calls now.
spk03: Thank you. As a reminder, to ask a question, you need to press star one one on your telephone. If you'd like to cancel a request, please press the star one one again. One moment for the first question. First question comes from the line of Kelvin Wong from Spica Capital. Please go ahead.
spk05: Good evening, management. Thank you for taking my questions. I'd like to have two questions, if I may. Two questions related to financials. First of all, about Opeth, we noticed that the company continued to record historical low on your both GAAP and adjusted Opeth. Just wonder how did you do that? Did you make further headcount reduction? If so, how will the reduced workforce impact on your business operations? And a related question is that do you expect to see further reduction in OPEX in the coming quarters? How low could that go? So that's the question related to OPEX. Another question is related to revenue. We saw a dip in revenue year-on-year and quarter-and-quarter. Of course, management has already made a very good explanation on the reasons behind. So what we would like to know is, going forward, what will be the revenue growth drivers? So two questions, one on RPEX, the other on revenue.
spk04: OK. Thanks for the call. This is Shannon. Let me try to answer your question. From a financial perspective, we are very pleased to report that we did achieve the so-called GAAP and non-GAAP adjusted OPEX on a low basis this quarter again. As to how we do it, there are a couple of things that we have been doing well. First, our going cloud project was executed successfully, which means that we are able to reduce significant amount of depreciation from the server expenses. This is very important. Besides the expenses aside, as you know, over the past few years we have been spending like maybe $10 million a year on servers. And with the Going Cloud project that we have done over the past year, we are no longer needing to spend such money. So for the servers that we are using right now, the cloud servers, and we are only paid as we go, which means that we only have to incur expenses based on what we have consumed. This also greatly improved our cash flow. This is the first thing that we did. The second thing that we have done on reducing the OPEX is that we have implemented the strict cost control based management strategy over the past years. Probably you can see over the years we have reduced the headcount. We have also looked at every single expense that we have. Moving forward, we do not anticipate any further reduction or big reduction in our headcount, and we are pretty comfortable in terms of where we are in terms of headcount to continue our operations. So this is the first question. I think you asked about how low can the OPEX go going forward. I think the short answer is, as I say, all expenses is at a pretty optimum level right now, and we do not expect to have significant decrease in OPEX every quarter going forward. So this is a pretty optimal level that we think we can operate within the framework right now. And I think the second big question you asked is the dip in revenue and what are our revenue growth driver going forward. I think if you recap what Chris has said during the call earlier, we have seen a huge opportunity from overseas business, which is the Engage Lab products. There are a couple of things that I would like to share with you. Based on the overall contract pipeline that we have internal research, about 15% to 20% of our total sales leads are now coming from overseas, which means that this coming back will be a big chunk of our revenue contribution because 15% to 20% of our sales leads are coming from overseas. And this is one of the metrics I'll share with you. The second is for the new contract that we have signed by value, the percentage contributed by overseas customer has grown three times from 3% to 10% of the total contract value in Q1 2023, which means that the contract value has grown three times over the past quarter. And this percentage we have seen in the Q2 of this year, which means the month of April and May, the contribution percentage is continuing to improve. I guess with this trend, we believe that our overseas revenue will be the primary growth driver going forward. Having said that, we have not taken our eyes off our bread and butter, which is the developer service. They are and will continue to be our major contributor for our stable cash flow and revenue in the future. I hope this answers your question.
spk05: Yes, very clear. Thank you.
spk03: Questions? As a reminder, to ask questions, please dial star 11. Our next question comes from the line of Brian Kinslinger from AGP. Please go ahead.
spk00: Great. Thanks so much. Just in a follow-up to the answer you just gave on the revenue drivers, You said overseas has gone from 3% of bookings to 10%. What products that you sell or services are most being bought by these overseas customers? Is it EngageLab or is it some of your other services?
spk04: Hi, Brian. This is Shannon. Yeah, those are 100% from EngageLab.
spk00: Great. So I guess... If I understand correctly, EngageLab is a product that's helping customers choose data storage locations. Do you own the networks or are these partners of yours? And then how are you acquiring customers for this product? That would be helpful. Thanks.
spk04: Brian, the EngageLab is the push notification that we help the customers outside of China to do the notification, the messaging. So it's nothing to do with the storage. which means that a customer in, say, like Singapore, they have an app, APP. They would like to reach out to their customers or users in Southeast Asia. We help them to do the push notification in Singapore. This is exactly what we are doing since 2021 in China, just that we replicate the product overseas.
spk00: Okay. And then... You said you expected a recovery in subscription services. What's driving this recovery in your view? I suspect the environment remains challenging.
spk04: Yeah, I think a couple of things. One is simply because the Q1 was low season. That's a given. And right now, what we are seeing is customers are, again, people are trying to be more cost efficient. They try to get the best deal of their services. So they are more likely to outsource to us, which is one of their best partners in terms of doing the push notification. So this is kind of like a change in the mindset of rather for them to invest a lot of money, people, engineers to do it in-house, they are going to outsource to third parties like us. I guess good numbers that I can share with you, based on what we are seeing right now in Q2, we have the April and May numbers in already. And based on this, the trajectory that we're looking at is the developer service subscription business, we expect to have a double-digit growth in Q2, a quarter over quarter. So you can see the numbers are looking good and people are buying our services.
spk00: And then value-added services really bottomed out. You mentioned, and obviously, the advertising market is quite challenging. I don't think that's changing right now. So what's the outlook for that business? Can it decline further if the market remains weak or how do you manage that business right now?
spk04: Based on what we are seeing, the value added service remains to be fairly flat. We do not expect it to have good numbers going forward. At best, it will try to be flat in the next quarter or so. Because if you look at what we have is we have researched some of the bigger ad player in China, such as those like the likes of Tencent, Baidu, and Weibo. All of them are recording quarter over quarter reduction in revenue for ad spending. So we are not any better. So I think the overall environment or overall ad market in China has remained weak or has not recovered to previous good times.
spk00: OK. My last question is really a high level question. You said customers have been challenged to close deals still given COVID. Help paint a picture for what the market is today. I mean, that was the first quarter, obviously. Here we are two thirds into the second quarter. Is COVID still a major challenge for you and what are the main obstacles in China enterprises are facing today?
spk04: As far as COVID is concerned, lack of a better word, I think is almost all over. people are not shutting down or work from home because of COVID anymore. And there's no regulation or policy that workers must work from home or cannot come to work. So COVID per se is over. So what we are looking at right now is probably the recovery from the overhang of the COVID. Yeah, COVID is over. That doesn't mean that the the business activity is 100% back to where it was. But we do see recovery. As I say, the developer service subscription business, we have seen more double-digit growth quarter over quarter. So this is a very encouraging sign.
spk00: Okay. Thanks so much.
spk03: Thank you. Thank you for the questions. As a reminder to ask questions, please press star 11. At this time now, no further questions on the line. I'd like to hand the call back to Christian for closing remarks.
spk02: Thank you, everyone, for joining the call tonight. If you have any further questions or comments, please don't hesitate to reach out to myself or anyone on the Aurora Mobile IR team. This concludes the call. Thank you, and have a good evening.
spk03: This concludes today's conference call. Thank you for participating. You may now disconnect.
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