Earnings Call Transcript - JG Q4 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Rene Vanguestaine. Thank you. Please go ahead, sir.

Rene Vanguestaine, Host

Thank you, Andrew. 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. On the call today are Mr. Weidong Luo, Chairman and Chief Executive Officer; Mr. Fei Chen, President; and Mr. Shan-Nen Bong, Chief Financial Officer. Following the prepared remarks, all three will be available to answer your questions during the Q&A session that will follow. 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 US 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 US 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'd now like to turn the conference over to Mr. Luo. Please go ahead.

Weidong Luo, CEO

Thanks, operator. Good morning, and good evening to everyone on the call. Welcome to Aurora Mobile's fourth quarter and full year 2021 earnings call. Before I comment on our Q4 and full year results, I would like to remind everyone that the quarterly earnings deck is available on our IR website for your reference. You may refer to the deck as we proceed with the call today. Despite a very challenging operating environment in 2021, we have achieved remarkable progress in our business operation and financial performance. The conclusion of the fourth quarter marked the first full year of our successful transition into our SAAS business model, which includes Developer Services and Vertical Applications. I am delighted to share with you the achievements we have made with various record high key business results. For an apples to apples comparison, numbers present their core contribution from the legacy Targeted Marketing business in the prior year. We entered the fourth quarter with a lot of momentum. Our key business metrics are showing exceptionally great results, which further confirms our strategic decision to fully transition into the business model is a great victory. Revenues were CNY101.2 million, up 32% year-over-year. This marked the highest SAAS revenue record for the company, surpassing CNY100 million for the first time, a key milestone for us. Gross profit was CNY72.1 million, the highest gross profit since Q1 of 2020, up by 23% year-over-year. Group gross margin was 71.2%, more than 1.2x compared with 36.7% a year ago. Adjusted EBITDA was CNY1.84 million, the first ever adjusted EBITDA profitable quarter since our transition to the pure SAAS business since Q1 of 2021, and adjusted EBITDA significantly improved by CNY19 million year-over-year from negative CNY17.1 million in Q4 2020. Net loss was CNY35.6 million, significantly narrowed down by 60% from a year ago. The number of paying customers increased to 2,768 from 2,367 a year ago, up 17% year-over-year. Total deferred revenue was above CNY100 million for seven consecutive quarters, indicating strength in our SAAS business growth where we collected payments from customers at the inception of each contract period. AR days remained consistent at around 38 days, indicating our disciplined customer credit checks and credit granting process pursuing revenue growth. Last but not least, our 2021 full year revenue was CNY357.3 million, representing a year-over-year growth of 39%, achieving the top end of revenue guidance range. Turning into profitability is a strong acknowledgment of our success in growing the top line revenues as well as our disciplined approach to drive operational efficiencies throughout the year. We are committed to continuing to control and optimize operating expenses across all business functions going forward, and we expect to further drive operating efficiencies in 2022. We are confident that with all these efforts in place, we are on the right path to achieve full year profitability on adjusted EBITDA for 2022. Let me now give you some updates on our product iterations and technology innovations, which we believe are key to driving our long-term competitiveness and meet the ever-evolving needs of our customers. UMS, we improved two meaningful product features. Our first feature update was focused on encrypting and enhancing the protection of data information. With this new feature, our customers' internal information can be centrally accessed, and at the same time, sensitive data are separated into various secured data banks to mitigate risk of information leaks and ensure compliance and information security of users and developers. The second update is where we have increased the functionality of one of the UMS channels, the SMS channel, with an ability to manage both upstream and downstream SMS messages. With these new functionalities, customers can manage not only the messages they send to the end user but they can also receive, save, and manage the messages that are sent back from end users. We are continuing to see customer reception steadily increasing for our UMS product. Well-known customers who have signed up during the quarter include, but are not limited to, China International Capital Corporation, China Merchants Fund, and Baidu Security. We also want to share with you the latest development regarding our partnership with Huawei Cloud since November 2021, where we officially launched our JVerification and other customized surveys on Huawei Cloud version 3. We have also launched our iAPP product, and we have added JPush Private Cloud to the list. By the end of 2022, we aim to complete the integration of our full product lineup to Huawei Cloud, including VAS, UMS, mLink, and so on. Our cooperation with Huawei Cloud demonstrates the industry-wide acclaim and trust we command for our comprehensive and competitive product portfolio and services. Similar to the partnership with Huawei, we have entered into a partnership agreement with QingCloud Technology Corp. to launch our verification service, JVerification, on the QingCloud marketplace, a significant trading pipeline that provides cloud-based apps and other service offerings. Securely integrated into QingCloud hybrid ecosystem, JVerification will provide a quick user registration unlocking to start security verification and other multi-factor authentication. SendCloud will continue to promote in-depth cooperation with QingCloud and leverage our technology advantage to expand our product offering to empower developers and enterprises to conduct high-quality operations, sustainable development, and effective monetization on the SendCloud platform. Earlier this week, we have entered into a definitive agreement to acquire a majority equity interest in SendCloud, China's leading email API platform for consumer marketing and user-centric transactional email services. We are a pioneer in the field of customer engagement, as SendCloud has a leading position in email sending services. Customers today rely more on omni-channel strategies as the need for user engagement intensifies. With the addition of SendCloud's email sending services, we will be able to quickly enrich our omni-channel customer engagement product offering, which currently includes mobile app push notifications, SMS, WeChat official accounts, WeChat mini-programs, Alipay mini-programs, DingTalk, and enterprise WeChat. We can therefore provide customers with industry-leading technology to simplify their omni-channel communications without having to manage different vendors for each channel. Together, we will have the joint advantage to provide a reliable and effective customer engagement platform for different industry verticals. Our paying customer base is also expected to almost double upon completion of this transaction, as SendCloud has more than 2,000 paying customers during the fourth quarter of 2021. Both parties can benefit from this acquisition through more cross-selling opportunities to the combined customer base and help fuel our future revenue growth. I'm truly looking forward to the synergy between the two companies and believe we can achieve more together. Now I will turn the call over to Fei, who will discuss the Q4 performance in greater detail.

Fei Chen, President

Thanks, Rene. Let me start the discussion by elaborating on the different revenue streams within the SAAS businesses. In the fourth quarter of 2021, our Developer Services continued to deliver solid results with 42% year-over-year growth, which was mainly fueled by a substantial 73% year-over-year growth in value-added services and 27% strong growth in our subscription services. Subscription services revenues were CNY44.4 million, an increase of 27% year-over-year, primarily driven by new customer acquisition and the strong growth in private cloud services. Our strategy of cross-selling various non-push subscription products has also contributed to this significant growth. As a result, the revenue contribution of non-push notification products increased to 49% from 38% a year ago. Non-push notification products, which include private cloud, SMS, and JVerification, also achieved a higher ARPU of CNY43,000, resulting in an overall ARPU for subscription services increasing by 8% to RMB 18,200 compared with RMB 16,800 a year ago. New and renewed contracts of notable customers in the quarter include China Telecom, Tesla, China Eastern Airlines, and others. Value-added services within Developer Services, which include revenues from JG Alliance services and Advertisement SAAS, continued to deliver impressive results by achieving a 73% year-over-year growth to RMB 30.2 million from RMB 17.4 million in the fourth quarter of 2020. Since we first started our value-added services in the fourth quarter of 2019, the revenue has grown exponentially by 8.2x and reached a new historical high this quarter. On the supply side of the JG Alliance, during the quarter, we continued to grow the traffic pool as it is a vital part of our strategy to increase opportunities for monetizing channels. The total number of apps within our network exceeded 470 apps compared to 394 in the third quarter of 2021, representing a 21% growth quarter-over-quarter. The total number of DAU within the network has also steadily increased to around CNY190 million for this quarter. On the demand side, mini-program developers and retargeting related to demand continued to dominate by contributing over 80% of our JG Alliance revenues in the fourth quarter of 2021. In terms of industrial verticals, we have had an increasingly strong demand from finance, e-commerce, and Internet services. During the quarter, ad agencies contributed more than 40% of JG Alliance revenue stream, while the rest came from direct-to-customers. Major customers of JG Alliance consisted of repeat customers and market leaders across many industry verticals. They include, but are not limited to, Taobao, Jingdong, Tencent Music, Alipay, and UC Browser. Now let's move on to Vertical Applications, which mainly cover financial risk management and market intelligence. These revenues grew steadily by 11% year-over-year, with the highest growth contribution coming from the Financial Risk Management business again. In the Financial Risk Management segment, revenues increased by 18% year-over-year with a solid 43% growth in ARPU. The record high quarterly revenue has been the most meaningful achievement since the first quarter of 2020, showing that the adverse impact of the pandemic on the Financial Risk Management business segment is substantially behind us. We anticipate a favorable macro environment to support the business and will continue to grow in 2022. During the quarter, we acquired new key account customers and continued to retain many existing customers. Some of our new and renewed customers include Mashang Consumer Finance, China Telecom BestPay Company Limited, and WeBank. Our Market Intelligence product line has made significant progress by signing a number of new key corporate customers during the fourth quarter of 2021, including Baidu, Amazon, Juhu, etc. Our new product iBrand, launched a couple of quarters ago, has been extensively used by investors and brands to track traffic index for offline retail shops and has gained traction during the quarter by signing a number of notable investment customers. We expect this product to be our new growth driver from the product perspective. Going forward, we are continuing to grow the IF business by having a wider coverage of key corporate customers as well as cross-selling iBrand product. With that, I will now pass the call over to Shan-Nen.

Shan-Nen Bong, CFO

Thanks, Fei. I'll go over some of the key expenses and balance sheet items. Let's talk about operating expenses. As a result of our continuous effort to efficiently manage operating expenses, in Q4 2021, our OpEx decreased by 13% year-over-year to CNY92.5 million. In particular, R&D expenses increased by CNY11 million to CNY45 million, mainly due to a CNY4.5 million increase in cloud costs to support the expansion of the SAAS businesses. Selling and marketing expenses increased by 48% to CNY33.2 million, mainly due to the increase in sales commission and expansion of our sales organization. G&A expenses decreased by 67% to CNY14.4 million, mainly due to a year-over-year reduction of CNY11 million in bad debt provision due to our proactive and strict financial control measures, a reduction of CNY11 million in long-lived assets impairment due to one-time costs for growing cloud projects in the same quarter last year, and a CNY5.9 million decrease in staff-related compensation. Also during the quarter, we streamlined our workforce in an effort to further improve our overall operating efficiency and to ensure OpEx maintains at a healthy level. We will continue to optimize our organizational structure and fine-tune our OpEx level while sustainably growing our revenue. Adjusted EBITDA, calculated as EBITDA excluding share-based compensation, reduction in force charges, impairment of long-lived assets, impairment of long-term investments, and change in fair value of foreign currency swap contracts, has had a significant breakthrough and delivered a first positive quarter since 2020 at CNY1.8 million, which significantly improved by CNY19 million year-over-year from negative CNY17.1 million in Q4 2020. For the fourth quarter of 2021, we have delivered a set of excellent financial results which includes the following highlights: First, revenue from our SAAS business increased significantly by 32%. Our gross margin improved from 56.7% to 71.2%, a direct result of our Q4 2021 gross margin being 100% contributed by the high margin SAAS business. OpEx decreased by 13% due to effective and stringent cost control measures. As a result, our adjusted EBITDA turned around and reached positive CNY1.84 million. This marks the first adjusted EBITDA profitable quarter since the beginning of 2020 when we commenced the transition into the SAAS business model. This demonstrates that with the right cost structure, profitability is highly achievable as we continue to scale our SAAS businesses. Onto the balance sheet. I'll start with two key KPIs that we closely monitor. Firstly, the AR turnover days remained stable at 38 days this quarter compared to 37 days a year ago. Our disciplined accounting policy and cash collecting efforts ensure a timely collection of our accounts receivable. We are very pleased with the AR turnover days remaining fairly consistent quarter-over-quarter. Secondly, the total deferred revenue balance, which represents cash collected in advance from customers, has exceeded CNY100 million at quarter-end for seven consecutive quarters. As of December 31, 2021, the balance was at CNY124 million, up from CNY119 million in Q3 2021. Next, total assets were at CNY595 million as of December 31, 2021. This includes cash and cash equivalents of CNY284 million, accounts receivable of CNY43 million, prepayments of CNY12 million, fixed assets of CNY62 million, and long-term investments of CNY142 million. Total current liabilities were at CNY373 million as of December 31, 2021. This includes a short-term loan of CNY150 million, accounts payable of CNY18 million, deferred revenue of CNY120 million, and accrued liabilities of CNY85 million. Business outlook. Based on the current available information, the company sees the full year 2022 revenue guidance to be in the range of CNY435 million to CNY455 million, representing a growth of 22% to 27% year-over-year compared to 2021 results. The above outlook is based on the current market conditions and reflects the company's current and preliminary estimates of market and operating conditions and customer demands, which are all subject to change. Lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended December 31, 2021, we did not repurchase any shares. As of December 31, 2021, cumulatively we have repurchased a total of 921,000 ADS since the start of our program. And this concludes management prepared remarks. We're happy to take your questions now.

Operator, Operator

And I'm showing we have a question from Brian Kinstlinger with Alliance Global.