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 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, Vinay. Thank you. Please go ahead, sir.

Thanks, Renee. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2023 second quarter earnings call. Before I comment on our Q2 results, I would like to remind everyone that the quarterly earnings deck is available on our IR website; you may refer to the data as we proceed with the call today. Coming 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 fronts within the quarter; however, they are not at the level of a year ago. During Q2 of 2023, with the overall environment improving, firstly, we continue to expand our subscription business with the help of our EngageLab product offering overseas. I will share more on our engagement business later on. Secondly, our value-added services recorded impressive sequential revenue growth. Furthermore, our vertical application bases recorded solid growth. Last but not least, we continue to control our expenses for our organization. With these as the backdrop, here are the good financial results that I would like to share with you. Total revenue grew 12% quarter-over-quarter. Gross profit grew quarter-over-quarter to RMB47.7 million. We achieved the lowest adjusted operating expenses since our IPO at RMB54.6 million. Our operating expenses were the lowest since the IPO at RMB54.1 million. The accounts receivable turnover days were at 47 days, showing improvement year-over-year and quarter-over-quarter. The product revenue has been around RMB130 million for the past six consecutive quarters. Now let me go over all the different revenue streams. Developer services revenue decreased 6% year-over-year mainly due to the weakness in value-added services offset by the 50% growth in subscription services. However, developer services revenue grew solidly by 15% quarter-over-quarter, where both subscription and value-added services had record sequential revenue growth. Subscription services revenue was RMB40.5 million, up 6% year-over-year, mainly driven by increasing ARPU. There was also a record revenue growth of 8% quarter-over-quarter. Some of the notable new and renewal customers in this quarter include but are not limited to various entities. Value-added services revenue was RMB11.5 million, a decrease of 32% year-over-year, which was a result of weak advertising demand. However, we managed to record 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 about revenue growth in the online advertisement market. Now, let me give you some updates on our overseas EngageLab product. As I shared in the pre-quarter earnings release, we now have data centers across the globe catering to customers in different regions and continents. As we expand our footprint globally, we can sign up more international customers. Our investment in technology, innovation, and building global infrastructure is paying off. As of now, we have global customers coming in from 12 different countries and regions, including Hong Kong and Taiwan. For our discussions with these overseas customers, they selected our services mainly due to the following reasons: one, reliable and stable service delivery; two, strengthened data security and compliance; and three, local data centers across the world. Let me show some other impressive metrics here in Q2. Our Engagement 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 significant overseas email and SMS volume growth. In Q2, the total overseas email requests volume was at 3.3 billion, representing 4.2 times our domestic email cross-border. Overseas email and SMS request numbers recorded growth of 19% and 90% between the quarters. Our engagement business activity is gradually growing in importance for both transaction and contract value contributions. Therefore, I'm very confident about the progress of our overseas business strategy that we initiated a year ago. I believe we will benefit from the overseas efforts in the near future. With that, I will now pass the floor over to Shan-Nen, who will share more information about our vertical applications and other aspects of our financial performance for this quarter.

Thanks, Chris. Just to recap, vertical applications mainly consist of financial risk management and market intelligence. In this quarter, our vertical applications recorded revenue growth on both a 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 ARPU growth between the periods. In Q2, 2023, we have seen customer consumption or purchase of our services increase, pushing the ARPU higher quarter-over-quarter. Apart from customer increased consumption, we managed to sign up more customers. As for market intelligence, the revenue remained stable year-over-year and quarter-over-quarter. I will now go into some of our key expenses and balance sheet items. Looking at operating expenses, I'm again very pleased to share with you that in Q2 2023, we achieved another record low quarterly operating expenses at RMB64.1 million. For your year-over-year comparison, operating expenses decreased by 27%, where all three categories of operating expenses—R&D, S&M, and G&A—recorded reductions between the periods. This is critically important for us to maintain our operating expenses at an optimal level. This is the reason why we were 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 monitoring and controlling our operating expenses both now and going forward. I'll now go into the individual operating expense categories. In particular, R&D expenses decreased by 26% year-over-year to RMB30.2 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 no longer needing as many servers due to our ongoing cloud initiative. Selling and marketing expenses decreased by 14% year-over-year to RMB20 million, mainly due to a 30% decrease in headcount. G&A expenses decreased by 41% year-over-year to RMB13.9 million, mainly due to a $2.5 million decrease in personnel costs and a $5.3 million decrease in professional fees. As I mentioned earlier, as a result of our focus to drive operating expenses to optimal levels, the adjusted EBITDA improved significantly by 42% year-over-year to negative RMB4.6 million. On to the balance sheet, I will share two very important KPIs that we closely monitor. We continue to maintain a healthy accounts receivable turnover days at 37 days. This was a significant improvement from a year ago when the accounts receivable turnover days were at 46 days. We also shortened the accounts receivable turnover days quarter-over-quarter. In summary, our team has done a great job this quarter in improving our cash collection and mitigating accounts receivable double debt risk. Secondly, one of the key financial KPIs for tracking the performance of a SaaS company is total deferred revenue, which represents cash collected in advance from customers for future contract performance. The balance continues to be at a high level of RMB127.3 million, and this is the sixth consecutive quarter where our deferred revenue balance exceeded RMB330 million. We continue to sign up new and renewal customers who prepay their fees in advance. This again really improves our cash flow quarter-over-quarter. Next, total assets were at RMB371.9 million as of June 30, 2023. This includes cash and cash equivalents of RMB51.1 million, accounts receivable of RMB34 million, prepayments and other current assets of RMB31.1 million, fixed assets at RMB10.1 million, long-term investments of RMB140.4 million, goodwill of RMB37.8 million, and intangible assets of RMB20.9 million resulting from the SendCloud acquisition in March 2022. Total current liabilities were RMB235.8 million as of June 30, 2023. This includes a short-term loan of RMB5 million, accounts payable of RMB22.2 million, current operating lease liability of RMB7.2 million, deferred revenue of RMB135.4 million, and accrued liabilities of RMB65.8 million. Lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended June 30, 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's prepared remarks. We're happy to take your call now.

Thank you for taking my question. I'd like to have two questions if I may. The first question is related to your financials. It is great to see that your financials are recording continuous improvement every quarter. Last quarter we saw a sequential increase in revenue, a sequential decrease in operating expenses, and a sequential narrowing in negative adjusted EBITDA. So, the question is simple: what is the management's expectation about turning into positive adjusted EBITDA? Is this something we will see next quarter or in Q4 of this year? And the second question is related to your EngageLab product. We see that your EngageLab product is making good progress overseas. So, can management share more about that progress? And how management is looking at this business and its growth path? So the first question is about adjusted EBITDA and the second one is about the EngageLab product. Thank you.

Sure. Sure, Calvin. This is Shan-Nen. Let me take your call. Yes, you are right. Your observation is spot on. Yes, the financial KPIs such as revenue growth, operating expenses, 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 past few quarters. I guess our work is not done; we still need to make good progress on revenue expansion. I believe we need to move more customers onboard, both inside and outside of China, and increase the ARPU across the board. Secondly, we certainly cannot take our eyes off monitoring our expenses. The market conditions are relatively volatile, as you know. I believe we are in a great position through the hard work that we have put in over the past six or eight quarters in the past year or two. Based on our current trajectory, we are cautiously optimistic that, if everything goes according to our plan, we should be able to record positive adjusted EBITDA in Q4 of this year. I must put a disclaimer that this is our best current estimate and is subject to market conditions. Nevertheless, I think there is still a possibility that we could turn adjusted EBITDA positive in Q3 if everything goes according to plan or earlier than we expect. So we will see how we trend in Q3. Regarding your second question about EngageLab, yes, I believe you have heard what Chris has shared; we are very pleased with the progress of the EngageLab product. I guess there are a few things we have done well. First, we have invested in additional data center infrastructure around the world. This gives our overseas customers great options to choose how and where they want to store their data in a way that better suits their security and compliance needs. And of course, ensuring our service delivery is paramount. We must ensure that our services meet or even exceed customer expectations. We need to address all our customers' concerns in a timely manner. Therefore, whether the customer is based in Singapore, Australia, or China, we aim to provide a consistent high level of quality services to all our customers worldwide. Additionally, I want to update you based on the deck you have seen; our customer base now includes clients from 12 countries and regions around the world. Earlier this week, I was told that we are now starting to process additional services in Mexico and Turkey. You can see that our services are moving into new territories quarterly, so we believe we have done many things right to venture outside of China, and we will continue to grow our overseas customer base every quarter. So that answers your questions, Calvin.

Thank you. Thank you for your comments on the positive adjusted EBITDA. It's very clear. Thanks.

Great, thanks so much. The early success you are having overseas sounds great. I'm wondering if you can quantify the revenue impact during the second quarter and provide some context into how you expect this to ramp overseas in terms of revenue.

Hi, Brian, this is Shan-Nen. Right now, the contribution is not material yet. But as you know, based on our business model, one contract defines the revenue that comes in on a monthly basis for the next 12 months. The good thing we observed is, as Chris mentioned, based on the new contracts we signed in Q2, 20% of them are coming from overseas, which has increased three times from Q1. This reflects the positive trend related to contract value contribution from overseas. We're tracking this closely; maybe in the next quarter or two, when the revenue contribution is material enough, we will make the disclosure.

Got it. And what is that? Can you share that contract value with us?

Not at this time. Yeah, we're not in a position to disclose the value of the contract yet.

Right. And then, on subscriptions, you saw higher ARPU. Is that due to pricing or more services for customers? And do you see more opportunity for ARPU growth in the second half of the year? If so, what drives that?

Yes, the ARPU growth we experienced will primarily come from overseas. As I've shared with you and other investors or analysts before, the ARPU we generate from overseas is at least double that of China. Therefore, as contributions from overseas increase, our ARPU will surely rise.

But within the bit of overseas working material in the second quarter, what was the factor that drove the higher ARPU in the second quarter?

It hasn't been material yet. However, it contributed to ARPU improvement between the quarters since Q1 is always the low quarter for the year. Overall, we did see a pickup in ARPU. To reiterate, a major contribution will come from overseas ARPU growth.

And then, how much of the sequential revenue growth in value-added services was a result of capturing the ad spend during the June 18 Shopping Festival? And are there any other such festivals that we should consider for the second half of the year?

Sure. I would say the majority of the value-added services revenue growth is from the 618 Festival. Looking ahead in China, the two major online e-commerce festivals are 6/18 and 11/11 in Q4. Therefore, this suggests that Q3 will likely be a slower season compared to Q2 and Q4.

Got it. Great. And lastly, while you guys have done a great job managing expenses, the gross margin was at a multiyear 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.

No, it's not a baseline. Based on our current Q3 estimate, the gross margin is going to improve and is likely to be higher than 65%. The reason for the dip in Q2 was largely due to the higher contribution of SMS related revenue, which tends to have a lower margin compared to other SaaS businesses, as we incur fixed costs that we need to pay to telecom companies for all the SMS that we send.

There are no further questions at this time. I'd like to turn the call back over to Vinay for any closing remarks. Thank you, Michelle. 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. This concludes the program. You may now disconnect.