Aurora Mobile Ltd Q2 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Aurora Mobile Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host today, Rene Vanguestaine. Thank you. Please go ahead, sir.

Hello, thank you. Hello, everyone and thank you for joining us today. Aurora Mobile'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. Shan-Nen 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 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 now like to turn the conference over to Mr. Luo. Please go ahead.

Thanks, Rene. Greetings to all. Welcome to Aurora Mobile's 2024 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 deck as we proceed with the call today. Following our quarterly earnings tradition, based on the Q2 numbers, I will call our performance in the second quarter riding on the great growth momentum for the following reasons. Firstly, continuing the strong Q1 performance, we recorded the fourth consecutive quarterly positive adjusted EBITDA. This is a historical achievement for us since our IPO in 2018. Secondly, developer subscription revenue recorded a 14% growth quarter-over-quarter and 19% growth year-over-year. Furthermore, our gross profit showed group growth, both year-over-year and quarter-over-quarter. Notably, our net loss narrowed 95% year-over-year and 50% quarter-over-quarter. I'm truly pleased to share this good news and remarkable financial numbers with all of you. As we continue to grow our top line while tightly and effectively managing the business, we are very hopeful for more great results in the future. Let me elaborate further. Our total group revenue has grown both quarter-over-quarter and year-over-year by 23% and 8%, respectively, and we have seen a strong growth trajectory for both the Developer Services and Vertical Application businesses. All our businesses, mainly Subscription Services, value-add services, and Vertical Applications, recorded quarter-on-quarter revenue growth, which also reflects a year-over-year increase, except for value-added services. Developer Services revenue, which consists of subscription services and value-added services increased by 26% quarter-over-quarter and 8% year-over-year. Subscription revenue increased by 19% year-over-year and 14% quarter-over-quarter. Value-added services revenue grew by 245% quarter-over-quarter and decreased by 28% year-over-year. The subscription services revenue of RMB48.1 million grew by 19% year-over-year and 14% quarter-over-quarter. The year-over-year and quarter-over-quarter revenue growth was mainly driven by an increase in ARPU, which resulted from a combination of signing up higher value contracts and completion of private card purchases. Another major contributor to this impressive revenue growth was the solid performance of our EngageLab business. The EngageLab recognized revenue grew more than 500% year-over-year and 59% quarter-over-quarter. I will elaborate more on our EngageLab business shortly. Within subscription revenue, some of the notable new and renewable customers in this quarter include but are not limited to China Southern Airlines, Tiger Brokers, Zhangjiakou Income, and others. Value-added services revenue was RMB8.3 million, increased by 245% quarter-over-quarter and decreased by 28% year-over-year. The sequential increase was due to the New Yabar online shopping festival where online advertisers increased their advertising spending to capture more customers during this period. This revenue trend in Q2 was within our expectations. Next, let me explain more about some very exciting numbers and achievements for our EngageLab business this quarter. Firstly, more and more customers are signing up to purchase our EngageLab products and services. The contracted customer number has recorded a 75% growth, reaching 390. We truly believe our EngageLab is a superior product where our reliability and high delivery rate are addressing global customer needs effectively. We saw many new customers switching to our EngageLab platform from competitors due to our product's core competency. Secondly, the cumulative signed contract value of EngageLab grew by another RMB4.5 million quarter-over-quarter. Cumulatively, the total contract value signed up to June 30, 2024, amounts to more than RMB41 million. This growth momentum has exceeded our expectations, and we plan to seize this growth opportunity with our forecast. Further, we continue to expand the geographical footprint of our EngageLab products. By June 30, 2024, EngageLab products and services were sold to customers in more than 29 different countries around the world. In Q2 alone, we added seven additional countries where EngageLab is available. We are very pleased with the progress of our expansion plan. We are gaining more customers from new territories or countries quarter-over-quarter. In addition to the Singapore office that we set up at the beginning of 2024, we are now actively exploring opening local offices in other Southeast Asian markets such as Thailand and Malaysia. This will undoubtedly help us better serve our overseas customers locally and foster stronger business relationships with our local direct customers and ISVs. As a side note, let me also share with you our overseas expansion efforts. As previously mentioned, Shan-Nen and I attended a Tech Expo in Singapore in late May. Since then, we have received many invitations to other similar Tech Expos in Southeast Asia. From what I know, we have been invited to attend tech events, including one in Thailand, one in Hong Kong, and two in Singapore. There are more in the pipeline. We find it very effective to expand, chat, and share in-person with prospective customers during these expos, where we can demonstrate our products and answer any questions. With great sales conversations from the Singapore Tech Expo in May, we will continue to be present at these expos in Southeast Asia, the Gulf region, and beyond. With that, I will now pass the call over to Shan-Nen, who will share more about the vertical applications and other aspects of our financial performance for this quarter.

Thanks, Chris. Next, I'll go over the revenue for vertical application that includes financial risk management and market intelligence. Overall, vertical application had a great quarter where revenue grew by 16% quarter-over-quarter and 8% year-over-year. Financial Risk Management had a very good quarter as revenue grew by 34% year-over-year and 28% quarter-over-quarter. The 34% year-over-year revenue growth was mainly due to a strong 30% customer number growth. We saw more financial sector customers using our products as the need for risk management and control has been on the rise since the beginning of 2024. This is in line with our expectations. When purchasing services from various bankers like us, financial sector customers will secure and always allow multiple sources of quality data streams to strengthen their risk models; moreover, these are not exclusive relationships, therefore, we can grow this business even with the core assistance of peers in this industry. The quarterly revenue recorded growth for the sixth consecutive quarter since Q1 of 2023. The customers that we signed up or renewed in Q2 include Ping An Xiao Jing and many more licensed credit or financial institutions throughout China. Market Intelligence revenue decreased by 27% year-over-year and 9% quarter-over-quarter due to the continued weak market demand for Chinese APP data. Nevertheless, in Q2, we signed up a few new and renewed contracts from some well-known large customers such as Ita and many top-tier global hedge funds like Point72, Broad Peak, and SRS Investment. Next, I'll go through some of our key expenses and balance sheet items. For operating expenses, the Q2 operating expenses were at RMB54.8 million, representing a 15% decrease year-over-year and a 3% increase quarter-over-quarter. While we have successfully cut expenses over time, we understand some of the expenditures will grow occasionally. For example, we are more than happy to see commissions paid to our sales and marketing department grow every quarter, because that means we are meeting or exceeding the revenue targets set for them. Plus, we will welcome expense growth in specific areas, which demonstrate healthy business growth. I'll go through the individual OpEx category now. For R&D expenses, these decreased by 22% year-over-year to RMB23.7 million, mainly due to a lower headcount that reduced salary costs and associated share-based compensation and a decrease in server depreciation expenses due to our growing cloud initiative. Selling and marketing expenses increased by 2% year-over-year to RMB20.5 million, mainly due to the increase in sales commissions in line with higher revenue. General and administrative expenses decreased by 23% year-over-year to RMB10.7 million, mainly due to lower share-based compensation expenses and professional fees incurred. For the quarter ended June 30, 2024, it was another history-making quarter for us. With great revenue growth and tight OpEx spending, we recorded yet another positive adjusted EBITDA. With this, we now have four consecutive quarters of positive adjusted EBITDA. Trust me, this is not an easy achievement, especially as the overall economy has been relatively soft. I attribute this to the great Go Overseas initiative that we've undertaken since 2023. The EngageLab business expansion has undoubtedly proved to be a great revenue growth driver. On to the balance sheet. I'll share two other important KPIs that we closely monitor. We continue to maintain a healthy AR turnover days level at 43 days with a four-day reduction compared to Q1 of 2024. We are very pleased with this lower AR turnover; we work hard to ensure we collect cash actively from customers while mitigating the risk of bad and doubtful debts. 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, which remained high at RMB135.1 million. This is the tenth consecutive quarter where our deferred revenue has exceeded RMB130 million. Next, total assets were RMB335.1 million. This includes cash and cash equivalents of RMB92.7 million, accounts receivable of RMB43.1 million, prepayments and other current assets of RMB20.8 million, fixed assets of RMB1.1 million, long-term investments of RMB113.2 million, goodwill of RMB37.8 million, and intangible assets of RMB15.8 million resulting from the SendCloud acquisition in March 2022. Total current liabilities were RMB228.2 million. This includes accounts payable of RMB26.6 million, current operating liabilities of RMB2.8 million, deferred revenue of RMB135.1 million, and accrued liabilities of RMB60.7 million. Now let me take a few minutes to recap what Chris has said at the beginning of this call where he used the term riding on the great growth momentum. In this quarter, our developer subscription services revenue recorded solid growth, both year-over-year and quarter-over-quarter. Financial risk management revenue also grew steadily by more than 30% year-over-year and 28% quarter-over-quarter. Our gross profit grew both year-over-year and quarter-over-quarter. We are making history again here, as we recorded four consecutive quarters of positive adjusted EBITDA. Lastly, our EngageLab business recorded customer growth of more than 75% quarter-over-quarter and cumulative contract value grew by more than RMB4.5 million between the quarters to more than RMB31 million. With the above, I believe we have delivered a set of impressive quarterly financial results for all our shareholders. As we continue to pursue our overseas expansion and diligently execute our plan, I look forward to sharing more exciting quarterly financial results in the near future. Lastly, but before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended June 30, 2024, we repurchased 12,000 ADS. Cumulatively, we have repurchased a total of 217,000 ADS since the start of our repurchase program. This concludes our prepared remarks. I will be happy to take your questions now. Operator, please proceed.

Thank you. We will take our first question. Your first question comes from the line of Kevin Wong. Please go ahead. Your line is open.

Good evening, management. And thank you for taking my question, and first of all, congrats on delivering another set of great results. I would like to ask two questions, if I may. If we look at this quarter's results, we find that, okay, revenue has grown substantially, OpEx at a very good level, and then positive adjusted EBITDA for the fourth consecutive quarter. So two simple questions for the management. One, what has contributed to this set of good numbers? And two, any guidance on the Q3 numbers?

Thank you, Kevin. Let me take your questions. We believe we have performed well for our investors and shareholders. Looking at the four consecutive quarters of positive adjusted EBITDA we have achieved, this is like a grand slam in tennis. However, the groundwork was laid long before this time frame, and we are now seeing the results. From a high-level perspective, two main factors are contributing to our strong Q2 results: first, we have experienced organic growth in our business; second, we are operating efficiently in the current market. As mentioned earlier, three of our business lines—subscription revenue, value-added services, and vertical applications—recorded solid revenue growth quarter-over-quarter. Importantly, our core subscription business, which accounts for approximately 60% of our total revenue, grew both quarter-over-quarter and year-over-year due to an increase in customer numbers and ARPU. Our EngageLab business has notably excelled this quarter, with booked revenue growing over 500% year-over-year, propelled by a 300% increase in customer numbers. Additionally, our value-added services benefited from increased demand during the 618 online e-commerce festival. Financial risk management also had a strong quarter, with consistent growth over the past five quarters as more financial sector clients have utilized our services for their risk models. Regarding operating expenses, we continue to manage our business effectively. Revenue increased by 23% quarter-over-quarter, while operating expenses rose only 5% in the same period, and we aim to maintain this trend. As long as our revenue growth outpaces our operating expenses, we will see positive effects on profitability. However, we need to continue our efforts in overseas expansion by acquiring more international customers and ensuring higher contract renewals. We also need to maximize our operational efficiency. For the Q3 forecast, we should avoid jumping ahead. What we've shown publicly is our ability to execute and adhere to our strategy for delivering financial results. Thus, rather than making promises, I can say we will continue following our proven strategy for growth both domestically and internationally. I hope this answers your question, Kevin.

Very clear. Thanks.

Thank you. We will now move to our next question. It comes from Jack Sung at Research. Please proceed; your line is open.

Congratulations on a strong quarter. I'm Jack Sung from Research. I have a question about EngageLab. EngageLab had a strong quarter in terms of customer numbers and contract values. What is the outlook for EngageLab in the next few quarters?

Thanks, Jack. Let me take this question. Yes, thanks for your interest in EngageLab. I'm pretty sure that a lot of investors and our shareholders are keen to find out more. You are right to point out that we have great numbers in the past three or four quarters for EngageLab in terms of both customer numbers and contract value. Before I go to the outlook that you are looking for, let me revisit the current EngageLab business landscape. Currently, our EngageLab business is growing every quarter for the following reasons: first, we have a great suite of products and services that help our customers engage with their own users efficiently and cost-effectively. Second, we possess a competitive advantage in sending notifications to certain brands of Chinese mobile devices that our U.S. competitors cannot. Third, we have multiple channel engagement solutions that effectively cover all user engagement scenarios such as AppPush, WebPush, SMS, emails, OTP, and WhatsApp business API. With the above, I think we are addressing the needs of our customers, which is key because customers are only willing and likely to buy our services because we meet or exceed their expectations on user engagement. Additionally, we are acquiring new customers and businesses through both Chinese companies venturing overseas and local companies in their respective countries. We see great opportunities for us to expand and grow every quarter. Based on our research, the overseas market demand, which you can also call the Total Addressable Market for EngageLab, our notification business is substantial, and we intend to capture a good portion of the Southeast Asian market. As for your question on the outlook for EngageLab, I would say we are very hopeful for this business to continue growing every single quarter in the near future. I believe that by adding more sales personnel in Singapore and Malaysia, we can reach out to more customers, hence I am very confident that our sales team in the overseas market will successfully sign up more customers in the near future. Jack, I hope this answers your question.

Yes, that's very clear. Thank you a lot. Have a good one.

Thanks.

Thank you. There seem to be no further questions at this time. I will now hand the call back to Rene Vanguestaine for closing remarks.

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 all.

This concludes today's conference call. Thank you for participating. You may now disconnect.