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spk00: Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host for today, Rene Vagastein. Thank you. Please go ahead, sir.
spk05: Thank you, Michelle. Hello, everyone, and thank you for joining us today. Aurora's earnings release was distributed earlier today and is available on the IR website at ir.gguang.cn. On the call today are Mr. Wei-Long Luo, Chairman and Chief Executive Officer, Mr. Shan-Len Bong, Chief Financial Officer, and Mr. Guan Yang 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 21 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'd now like to turn the conference call over to Mr. Luo. Please go ahead.
spk02: Thanks, René. Good morning and good evening, everyone. Welcome to Arora Mobile's 2023 Second Quarter Earnings Call. Before I comment on our Q2 results, I would like to remind everyone that the quarterly earnings debt is available on our IR website. You may refer to the debt as we proceed with the call today. Coming off from our seasonal slow Q1 quarter, we managed to achieve a few good results sequentially in this quarter. Overall, we did see signs of recovery on most of the business lines between the quarters. However, they are not back to the level a year ago. During Q2 of 2023, we did a few things right. Firstly, we continue to expand our subscription business with the help of our EngageLab products offering overseas. I will share more on our EngageLab business at the later part. Secondly, our value added service business records impressive sequential revenue growth. Thirdly, our vertical application business records solid growth. Last but not least, we continue to control our expenses throughout the organization. With this as the Backdrop, here are the good financial results that I would like to share with you. Total revenue grew 12% quarter-of-quarter. Growth profit grew quarter-of-quarter to RMB 47.7 million. Lowest adjusted operating expenses since IPO at RMB 54.6 million. Lowest operating expenses since IPO at RMB 64.1 million. AR turnover days at 37 days, improvement year-over-year and quarter-over-quarter. The further revenue balance about $130 million for the past six consecutive quarters. Now let me go through our different revenue streams. Developer surface revenue decreased 6% year-over-year, mainly due to the witnessing in the value added surfaces, offset by the 6% growth in subscription surfaces. However, developer surface revenue grows solid by 1.5% quarter-over-quarter, where both subscription and value-added services have record sequential revenue growth. Subscription surface revenue will remain be 40.5 million, up 6% year-over-year, mainly driven by increasing ARPU. Similarly, we record revenue growth of 8% quarter-over-quarter, with the growth in ARPU between the quarters. Some of the notable new and renewable customers in this quarter include, but not limited to, Taikan Renshou, China Dianxin, Shimalaya, Jishan Hang Kong, just to name a few. Earlier at the surface, the revenue of RMB 11.5 million decreased by 32% year-over-year, which was a result of weak advertising demand. However, we did manage to record a good sequential revenue growth of 45% quarter-over-quarter, This was mainly due to our ability to capture a good portion of the e-commerce advertising spending for the 618 online shopping festival. However, we remain cautious on the revenue growth in the online advertisement market. Next, let me give you some updates on our overseas Engagelab product. As I shared in the pre-quarter earnings release, we now have the data center across the global catering for customers in different regions and continents. As we expand our footprint globally, we have signed up more international customers. Our investment in technology innovation and building global infrastructure have paid off. As of now, we have global customers coming from 12 different countries and regions, including Hong Kong and Taiwan. For our discussion with these overseas customers, they selected our service mainly due to the following reasons. One, reliable and stable service delivery. Two, strengthened data security and compliance, three local data centers across the world. Let me show some other impressive metrics here in Q2. Our EngageLab business segment signed contract value was at 21% of the total new contract value for the group. This number has grown three times between the quarters, showing great momentum. In addition, We have also seen great overseas email and SMS volume growth. In Q2, the total overseas email request volume was at 3.3 billion, representing 4.2 tons of our domestic email request volume. Overseas email and SMS request volumes have record 19% and 19% growth between the quarters. Our engagement basis activity is gradually growing importance for both transaction and contract value contributions. Therefore, I am very confident on the progress of our overseas business expansion strategy that we have started a year ago. I believe we will reap the benefit of this overseas effort in the near future. With that, I will now pass the call over to Xianglin. We will share more information about the vertical application and other aspects of our financial performance for this quarter.
spk04: Thanks, Chris. Just to recap, vertical application mainly consists of financial risk management and market intelligence. In this quarter, vertical application recorded revenue growth on both year-over-year and quarter-over-quarter basis. For financial risk management, revenue grew year-over-year and quarter-over-quarter. This was positively impacted due to output growth between the periods. In Q2 of 2023, we have seen customer consumption or purchase of our services increase, thus pushing the ARPU quarter-over-quarter. Apart from customer increased their consumption, we managed to sign up more customers such as Weizhong Bank, Ping'an Xiaofei Jinrong, Haier Xiaofei Jinrong, Zhongxing Xiaofei Jinrong. As for market intelligence, the revenue remains stable year-over-year and quarter-over-quarter. I will now go through some of our key expenses and balance sheet items. On to operating expenses. I am again very pleased to share with you that in Q2 2023, we have yet another record low quarterly OPEX at RM64.1 million. For year-over-year comparison, OPEX decreased by 27%, where all three categories of OPEX being research and R&D, S&M, and G&A all recorded reduction between the periods. This is critically important for us to maintain our OPEX at optimal level. This is the reason why we are able to record a 42% year-over-year improvement in adjusted EBITDA when the revenue dropped by 4% year-over-year. We strive to continue to tightly monitor and control our OPEX now and going forward. I'll now go through the individual OPEX category. In particular, R&D expenses decreased by 26% year-over-year to RMB 30.2 million, mainly due to lower headcount that reduced salary costs and associated share-based compensation, and a decrease in depreciation expenses as a result of us no longer needing as many servers due to our ongoing cloud initiative. Selling and marketing expenses decreased by 14% year-over-year to RMB 20 million, mainly due to the decrease of headcount by 30. G&A expenses decreased by 41% year-over-year to RMB 13.9 million, mainly due to a 2.5 million decrease in personnel cost and 5.3 million decrease in professional fee. As I mentioned earlier, as a result of our focus to drive OPEX At optimal level, the adjusted EBITDA improved significantly by 42% year-over-year to negative RMB 4.6 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 at 37 days. This was a huge improvement from a year ago where the AR turnover days was at 46 days. And we also shortened the AR turnover days quarter over quarter. In summary, our team has done a great job in this quarter to improve our cash collection and mitigating the AR doubtful debt risk. 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 customers for future contract performance. The balance continued to be at a high level of RM137.3 million. And this is the sixth consecutive quarter where our deferred revenue balance exceeded RM130 million. We continued to sign up new and renewal customers where they prepaid their fees in advance. This again greatly improved our cash flow quarter over quarter. Next, total assets were at RM371.9 million as of June 30th This includes cash and cash equivalent of $81.1 million, accounts receivable of $34 million, prepayments and other current assets at $31.1 million, fixed assets at $10.1 million, long-term investment of $140.4 million, goodwill of $37.8 million and intangible assets of $20.9 million resulted from the St. Cloud acquisition in March 2022. Total current liabilities were at $235.8 million as of June 30, 2023. These include short-term loan of $5 million, accounts payable of $22.2 million, current operating liabilities of $7.3 million, deferred revenue of $135.4 million, accrued liabilities of $65.8 million. And lastly, before I conclude, I'll give a quick update on the shared repurchase plan. In the quarter ended June 30th, 2023, we repurchased 443,000 ADS. Cumulatively, we have repurchased a total of 1.83 million ADS since the start of our repurchase program. And this concludes management prepared remarks. We're happy to take your call now.
spk00: Thank you. If you'd like to ask a question, please press star 11. If your question hasn't answered and you'd like to remove yourself from the queue, please press star 11 again. Our first question comes from Calvin Wong with Spica Capital. Your line is open.
spk03: Thank you for taking my question. I'd like to have two questions, if I may. The first question is related to your financials. Actually, it is great to see that your financials are recording continuous improvement every quarter. Like last quarter, we saw sequential increase in revenue, sequential decrease in OPAS, and sequential narrowing in negative adjusted EBITDA. So the question is very simple. What is the management expectation on turning into positive adjusted EBITDA? Is this something we will see like next quarter or in Q4 of this year? And the second question is related to your Engage Lab product. We actually see that your Engage Lab product was making good progress overseas. So could management share more about the progress and how management is looking at this business and its growth path? So the first question is related to adjusted EBITDA. The second one is related to engaged lab product.
spk04: Thank you. Sure, Kelvin. This is Shannon. Let me take a call. Yes, you're right. Your observation is spot on. Yes, the financial KPI, be it revenue growth, OPEX number, or adjusted EBITDA are all improving sequentially. As a company, we are very pleased with the effort made by the team throughout the organization over the few quarters. I guess our work is not done. We still need to make good progress on the revenue expansion. I think we need to move into more customers or getting more customers in and outside of China and increasing the output across the board. Secondly, I think we certainly cannot take our eyes off monitoring our expenses. But the market conditions are relatively volatile, as you know. So I believe we are in great position through the hard work that we have put in for the past six or eight quarters in the past year or two. And the question you asked, based on our current trajectory, we are cautiously optimistic that should everything goes according to our plan, we should be able to record positive adjusted EBITDA in Q4 of this year. But I guess I still have to put a disclaimer. This is our best current estimate and it's subject to market conditions. Nevertheless, I think, but there's still a possibility that we could turn adjusted EBITDA positive in Q3 should everything goes according to plan or earlier than what we expected. So we'll see how we trend in Q3. And the second question you asked about the Engage Lab, Yes, I think you have heard what Chris has said. We are very pleased with the progress with our EngageLab product. I guess a few things that we have done well. I think one is the fact that we have invested additional data center infrastructure around the world. This gives our overseas customers a great option to choose how and where they want to store their data that better suits their security and compliance needs. are most important. We need to make sure that our services meet or even exceed customer expectation. We need to address all our customers' concerns on a timely basis. Therefore, whether the customer is based in Singapore or Australia or in China, we have to provide a consistent high-level quality, high-quality services to all our customers around the globe. And also, I will give you an update on the latest, I guess, Based on the data you have seen, our customers are coming from 12 countries and regions around the world. I was told earlier this week that we are now starting to process additional service in Mexico and Turkey. So I guess you can see our services are moving into new territories quarter over quarters. Therefore, we believe we have done many things right for us to be able to venture outside of China and we should continue to grow. our overseas customer base every quarter. So this is my answer to your question, Kelvin.
spk03: Thank you. Thank you for your comments on the positive adjusted EBITDA.
spk00: It's very clear.
spk03: Thanks.
spk04: Thank you.
spk00: Thank you. Our next question comes from Brian Kinslinger with Alliance Global Partners. Your line is open.
spk01: Great. Thanks so much. The early success you're having overseas sounds great. I'm wondering if you can quantify the revenue impact during the second quarter and maybe put some context into how you expect this to ramp overseas in terms of revenue.
spk04: Hi, Brian. This is Shannon. Right now, the contribution is not material as yet. But probably, as you know, based on our business model, one contract that we sign, the revenue is going to contribute on a monthly basis for the next 12 months. But I guess the good thing that we have seen is, like what Chris has said, based on the new contract that we have signed in Q2, 20% of them is coming from overseas. And this has increased three times from Q1. So we can see the trending of this so-called contract value contribution from overseas. So this is something that we are tracking. Maybe in the next quarter or two, when the revenue contribution is material enough, we'll make the disclosure.
spk01: Got it. And what is that? Can you share that contract value with us?
spk04: Not the value. Yeah, we're not in the position to disclose the value of the contract yet.
spk01: Great. And then on subscriptions, you saw higher ARPU. Is that... pricing or more services for customers? And then do you see more opportunity for ARPU growth in the second half of the year? And if so, what drives that?
spk04: Yeah, if any ARPU growth, that will come from overseas. And I think we have discussed before, I share with you or other investors or analysts, the ARPU that we get from overseas is at least double of that of China. So with the contribution from overseas getting bigger, our ARPU certainly will have to go up.
spk01: But if overseas wasn't material in the second quarter, what was the factor that drove higher ARPU in the second quarter?
spk04: Yeah, it's not material, but it does help out on the ARPU between the quarters because Q1 is always the low quarter for the year. So back to your question. Overall, we did see some pickup on the ARPU, but what I'm trying to say is the major contribution is coming from overseas, the ARPU growth.
spk01: And then how much of the sequential revenue growth in value-added services was the result of capturing the ad spend on June 18th shopping festival? And then are there any other such festivals that we should think about in the second half of the year?
spk04: Sure. I would say majority of the value added services revenue growth is from the 618 festival. So if you look at going forward, in China I think there are two big so-called big online e-commerce festivals. One is the 618 and the other one is 111 in Q4. So having said that, which means that Q3 will likely to be a slower season. compared to Q2 and Q4.
spk01: Got it. Great. And lastly, while you guys have done a great job in managing expenses, the gross margin was at a multi-year low during the second quarter. What were the factors that drove that, and is that more of an anomaly, or is it more of the new baseline for the company? Thank you.
spk04: No, it's not a baseline. If you look at what we have based on our current Q3 estimate, Gross margin is going to come up. It's going to be higher than 65. That is the answer to the other question. And the first question you asked, the reason was simply because the fact that the SMS-related revenue contribution was higher in the quarter because the SMS business or revenue tend to have a lower margin compared to other SaaS business because we have a fixed cost that we need to pay to telcos. for every single semester we send.
spk01: Thank you.
spk00: As a reminder, to ask a question, please press star 1-1. There are no further questions at this time. I'd like to turn the call back over to Rene for any closing remarks.
spk05: Thank you, Michelle. Thank you, everyone, for joining our call tonight. If you have any further questions and comments, please don't hesitate to reach out to the IR team. This concludes the call. Have a good night. Thank you.
spk00: This does conclude the program. You may now disconnect.
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