Aurora Mobile Ltd Q3 FY2024 Earnings Call

Thank you, Michelle. 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 factors are included in the company's filings with the U.S. SEC. 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, Christian. Greetings to all. Welcome to Aurora Mobile's 2024 third quarter earnings call. Before I comment on our Q3 results, I would like to remind everyone that the quarterly earnings are available on our IR website. You may refer to that as we proceed with the call today. As we did in the past, based on the Q3 numbers, the appropriate description I will use for the Third Quarter result is record-breaking for the following reasons. Firstly, we are writing our own history. We are on a road. In this quarter, we achieved the fifth consecutive quarterly press release adjusted EBITDA. Secondly, developer subscription revenue recorded both 7% growth quarter-over-quarter and 11% growth year-over-year. More importantly, the quarterly revenue exceeded RMB15 million for the first time in history, yet another record-breaking event in this quarter. Thirdly, our EngageLab business continues to shine in terms of customer numbers and cumulative signed contract value, where they grew 42% and 23% quarter-over-quarter, respectively. We recorded net operating cash inflow of RMB12.3 million, the highest level in the past 16 quarters, bringing the cash balance above RMB101 million as of September 30, 2024. These are the highlights of the great numbers we have achieved in this quarter. Now let me expand further. Our total group revenue has grown 7% year-over-year, fueled by the strong numbers from developer services. Within the group revenue, developer subscription service and financial risk management recorded 11% and 29% year-over-year revenue growth, respectively. Development services revenue, which consisted of subscription services and value-add services, increased by 12% year-over-year and 2% quarter-over-quarter. Subscription revenue has been recording great numbers where it increased by 11% year-over-year and 7% quarter-over-quarter. Value-added services revenue grew by 20% year-over-year but decreased by 30% quarter-over-quarter. Our core business subscription services revenue of RMB51.7 million grew strongly by 11% year-over-year and 7% quarter-over-quarter. The year-over-year and quarter-over-quarter revenue growth was mainly driven by an increase in ARPU. As mentioned earlier, we achieved our own quarterly revenue record in this quarter where we had for the first time in history subscription revenue of RMB50 million in a single quarter. This is a remarkable achievement. I would like to take a moment to thank all our customers for trusting our products and services and our G1 teams for working hard to deliver great service to our customers. Another major contributor to this impressive revenue growth was the solid performance of our EngageLab business. The EngageLab business has contributed strong revenue growth in this quarter. On a year-over-year basis, the recognized revenue for EngageLab has grown close to 100%. I shall share more on EngageLab business shortly. Within subscription revenue, some of the notable new and renewable customers in this quarter include, but are not limited to, the world's largest heavy company for their Chinese operations, BYD and ShunFeng Express, Kimichai Mingshot and Gwanda Credit Card, just to name a few. Value-added services revenue was RMB5.8 million, decreased by 30% quarter-over-quarter but increased by 20% year-over-year. The sequential decrease was due to the new YouYabao online shopping festival in Q2, but was non-existent in Q3. This revenue trend in Q3 was within our expectations. Next is the most exciting part of the business in terms of its growth and future perspective. Allow me to spend the next few minutes on our EngageLab business this quarter. Firstly, we continue to acquire more overseas customers in Q3. The contracted customer numbers have reached 513, representing a 32% sequential growth. Secondly, the cumulative signed contract value of engagement has grown by RMB6 million quarter-over-quarter as of September 30, 2024. The total signed contract value stood at approximately RMB48 million. We are truly pleased with this result. Further, we expanded our global reach to two additional countries in this quarter by September 30, 2024. Our engagement products and services were sold to customers in more than 31 different countries and regions globally. In summary, since we expanded overseas, more than 513 customers from 41 countries have tested, convinced and brought our multichannel engagement services to help them improve their user engagement efforts in a more cost-efficient manner. Meeting and exceeding the clients' expectations is what we believe to be the key to our success globally. We will certainly not be resting on our laurels. We will continue to work harder. We have high hopes to achieve greater things overseas. Internally, we can properly fulfill and prepare the detailed execution plans and allocate our resources accordingly. This is an ongoing process where we will make continuous adjustments and steps as necessary. Yes, the overseas expansion is not easy, but with the track record we have had for the past six quarters, I'm very hopeful yet committed to ensure we can and will continue to bring great customers from around the world every quarter. As of today, apart from our Singapore office, we have set up our current Colombo office. In Colombo, we now have local sales staff with great local knowledge on the ground, which will help us better serve the local markets and the neighboring countries and customers. As a matter of fact, I was in Colombo last week for a short one-week business trip there. I was overwhelmed with the great responses from our potential customers in Colombo. They were very impressed with the multichannel engagement services we have and are converting to subscribe to our services. Our services are indeed very suited to the local market and customers' needs. Therefore, we are building a very strong sales pipeline in Malaysia, and we are looking to gain more resources to increase both market penetration and market share. With the successful cases we have in both Singapore and Malaysia, we are going to replicate this conversion of new customer acquisition experience to other countries in the Asia Pacific region. I believe there will be more great success stories than I can share with you in the next earnings call. With that, I will now pass the call 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 of our vertical application that includes Financial Risk Management and Market Intelligence. Overall, vertical application had a relatively quiet quarter, where revenue decreased by 6% quarter-over-quarter and 4% year-over-year. Nevertheless, in this relatively quiet quarter, we still saw a great number from Financial Risk Management, where it recorded a 29% growth in revenue year-over-year and was relatively flat quarter-over-quarter. They were the star performer within vertical applications. The 29% year-over-year revenue growth was mainly due to a strong 28% growth in ARPU. The trend we have seen in Q3 indicates that existing customers have increased their consumption of our financial risk management products and services. This is very important, as it provided a very solid foundation for the revenue numbers every quarter. This also demonstrates that our products are widely used and well received by financial sector customers in their own risk models. The customers that we signed up or renewed in Q3 include, but are not limited to, Ningbo Ligong, Zhendu Ligong, Haier Xiaoxing, Ping An Xiaoxing, and many other licensed credit and financial institutions throughout China. Market Intelligence revenue decreased by 41% year-over-year and 22% quarter-over-quarter due to the continued weak market demand for Chinese app data. This is in line with our expectations. In Q3 of 2024, we did manage to sign renewal contracts with some well-known large customers. From a product perspective within Market Intelligence, we have recently launched a global ranking of app services, where customers can now have access to multidimensional indicators, including app penetration rates, active user counts, and new users of global key apps across different countries and regions. Since its launch in September, we have seen a good trial account registration rate and believe it will provide a valuable new independent source of data for enterprises and investment customers to make informed investment decisions. Next, I'll go through some of the key expenses and balance sheet items. Our Q3 operating expenses stood at RMB57.1 million, representing a slight 4% increase quarter-over-quarter and a 5% decrease year-over-year. The majority of the increase was attributable to our sales and marketing department. As we expand overseas, this has required additional resource allocation. The increase in revenue and cash collection this quarter also resulted in additional commissions and expenses, all within our expectations. As long as the revenue and gross profit are growing at a faster pace than operating expenses, the end result will indeed be positive for the financial statement. Now, I'll go through the individual operating expense categories. For R&D expenses, it decreased by 26% year-over-year to RMB24.2 million, primarily due to a lower headcount which reduced salary costs and associated share-based compensation, along with a decrease in data analysis and technical service expenses. Selling and marketing expenses increased by 3% year-over-year to RMB22.4 million, mainly due to an increase in sales commissions and travel expenses as we continue to expand overseas. General and Administrative expenses increased by 92% year-over-year to RMB10.4 million, primarily due to a one-off RMB7.6 million gain from the disposal of fixed assets last year that was not repeated in Q3 of this year. Other G&A expenses movement was within expectations. Moving on to the balance sheet, I'll share two very important KPIs that we closely monitor. We continue to maintain a healthy accounts receivable turnover days at 48 days. We will continue to work hard to ensure we actively collect cash from customers while mitigating the risk of bad and doubtful debts. Secondly, one of the key KPIs for tracking the performance of SaaS companies is the total deferred revenue, which represents cash collected in advance from customers for future contract performance. This remains high at RMB134.8 million, marking the 11th consecutive quarter where our deferred revenue balance has exceeded RMB130 million. Regarding cash flow, we are pleased with the team's diligent cash management in operating activities this quarter. For the quarter ended September 30th, we recorded net operating activities cash inflow of RMB12.3 million, which is the highest level for the past 16 quarters. Total assets were $351.7 million as of September 30th, which includes cash and cash equivalents of RMB101 million, accounts receivable of RMB40.5 million, prepayments and other current assets of RMB20.2 million, operating lease right of use assets of RMB20.9 million, fixed assets of RMB3.2 million, long-term investments of RMB112.5 million, goodwill of RMB37.8 million, and intangible assets of RMB14.7 million from the Sand Cloud acquisition in March 2022. Total current liabilities were at RMB238.3 million, including accounts payable of RMB27.1 million, current operating lease liability of RMB5.4 million, deferred revenue of RMB134.8 million, and accrued liabilities of RMB68 million. Now, let me take a few minutes to recap Q3 of 2024. In this quarter, our developers' subscription services recorded solid and impressive revenue growth year-over-year, and, more importantly, we achieved RMB50 million revenue for the first time in history. Number two, we made history again this quarter with the fifth consecutive quarter of positive adjusted EBITDA. Number three, our EngageLab business recorded customer number growth of more than 32% quarter-over-quarter, and cumulative contract value increased by more than RMB7 million between the quarters to over RMB38 million. We recorded a net operating cash inflow of RMB12.3 million. Lastly, before I conclude, I'll provide an update on the share repurchase plan. In the quarter ended September 30th, 2024, we repurchased 29,000 ADS. Cumulatively, we have repurchased a total of 246,000 ADS since the start of our repurchase program. This concludes our prepared remarks. We're happy to take your questions now. Operator, please proceed.

Thank you for taking my questions. I really appreciate that the management has delivered another quarter of very impressive results. I'd like to recap what I heard you say: you have five consecutive quarters of positive adjusted EBITDA and your core developer subscription business revenue of more than RMB15 million, and finally, the EngageLab business is growing significantly every quarter. So, I really appreciate it if management could provide more insights on all these three great achievements. Thanks.

Let me take this question. For many, including yourself, achieving any one of these three milestones within a quarter is not an easy task. And for us to do it with all three great achievements in one quarter, I think it's remarkable to say the least. If there's one thing that I can attribute this to, it would be the effective execution that helped us bring these numbers. You can spend as much time and energy planning and preparing, but the key to success is how well you execute your plan. As you know, we started our plan to go overseas about 18 to 20 months ago, and it was a rough road ahead. We had to start everything from scratch. We did not just acquire an overseas company with operations; we did it the hard way, and along the way, we learned a lot. We tackled all the issues ourselves. For instance, when we ventured overseas, we needed to determine where we should store our customers' data, which overseas cloud service provider would suit us and our customers best, and the IT structure required to serve our customers across 31 countries. The best answers can only be had through on-field execution. Because we executed our overseas growth plan effectively, we were able to achieve RMB50 million in revenue for developer subscription service, the highest single-quarter revenue for this segment in history. However, achieving this revenue alone does not automatically lead to positive adjusted EBITDA. We also had to execute our business expansion and cost-saving plans simultaneously; all these are interrelated. Therefore, in conclusion, it is clear that management has the execution skill and determination to manage the business well. Only when we effectively execute our plans can we achieve a record-breaking quarter, as Chris mentioned at the beginning of this call. I hope this answers your question, Kevin.

Congratulations on a strong quarter. I'm Jack Sun from Research. I have a question for management. I heard Chris mention during the call that for the overseas expansion, you have offices and staff in both Singapore and Malaysia. To support overseas business growth, are we expecting more offices around the world in the near future? Thanks.

Yes. Thanks, Jack. Let me take this question too. Yes, you're right. We now have offices in both Singapore and Kuala Lumpur, Malaysia. We made a conscious decision when selecting these two cities for our offices. For the immediate future, we believe these two offices are strategically well-located to help us expand in Southeast Asia and beyond. Currently, a good portion of our overseas revenue comes from customers in the Southeast Asia region, so having local teams to support this region is key. We need to be there when customers have issues that need addressing or when they plan to buy more of our services. We believe there are many opportunities in Southeast Asian countries that we can tap into in the near future. With teams in KL and Singapore, it is a short trip for them if they need to be in Bangkok, Taipei, Jakarta, or any cities in Southeast Asia. In fact, our Singapore team has flown to Taipei this week for meetings with customers and ISVs there. Looking ahead, we certainly will consider more offices when there is a good reason to do so. For example, if business in the Gulf region becomes material, we will certainly consider having offices in Doha, Dubai, or Abu Dhabi to serve customers in that region. The short answer to your question is that the need for more overseas offices depends solely on the numbers. So long as the numbers add up, that is, we have enough customers and sufficient revenue, we will definitely set up more overseas offices in the near future. I hope this answers your question, Jack.

Thank you. There are no further questions at this time. I'd like to turn the call over to Christian Arnell for closing remarks. Thank you. 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 great evening, everyone. Thank you.

Thank you for your participation. This concludes the program. You may now disconnect. Good day.