Earnings Call Transcript - JG Q4 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Christian Arnell. Thank you. Please go ahead, sir.

Christian Arnell, Host

Thank you. Hello, everyone, and thank you for joining us today. Aurora Mobile's earnings release was distributed earlier today and is available on its 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. 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 call over to Mr. Luo. Please go ahead.

Weidong Luo, CEO

Thanks, Christian. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2023 fourth quarter earnings call. Before I comment on our Q4 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. Overall, if I were to give a comment for the performance of this quarter, the appropriate discussion for this quarter is growth, growth, and growth. The reasons are as follows. Firstly, we have a record, for the first time in history, consecutive quarters of positive adjusted EBITDA. Secondly, our total revenue grew every single quarter in 2023. Thirdly, Developer Subscription revenue also recorded sequential revenue growth in all quarters of 2023. Fourthly, our gross profit also grew in every quarter of 2023. Last but not least, our overseas product, EngageLab, continues to expand globally and recorded great results this quarter. Next, let me shed more light on the business and revenues. For our total group revenue, we achieved a steep growth of 5% quarter-over-quarter, driven mainly by the growth in Developer Services revenue. Now let me go through our different revenue streams. Developer Services revenue, which consists of subscription services and value-add services, decreased to 1% year-over-year but grew 8% quarter-over-quarter, mainly due to the weakness in the value-added services, offset by the 5% growth in subscription services. Next is the detailed discussion of each business line. Subscription services revenues were RMB48.8 million, up 5% over year-over-year and quarter-over-quarter. This was mainly driven by an increase in ARPU both year-over-year and quarter-over-quarter. In Q4 2023, our team completed a handful of private deployment purchases for many customers. I'm very encouraged by this trend and believe more good results will come. Some of the notable new and renewable customers in this quarter include but are not limited to China Telecom, China Pacific Insurance, Everbright Bank credit card center and others. Value-added services revenues were RMB6.8 million decreased 60% year-over-year but increased by 38% quarter-over-quarter, which was due to the annual single-day and Double 12 online shopping festival in Q4, where advertisers increased their spending and more budget allocation to us. However, there was no such event in Q3. Next, I would like to share with you some exciting news and great achievements we had in Q4 for our EngageLab business. Firstly, by the end of 2023, we had more than 170 customers signed up to purchase our EngageLab products, reflecting tremendous 70% growth over the quarters. Secondly, the commercial contract value of EngageLab reached RMB15 million, representing a great 50% growth between the quarters. Thirdly, our EngageLab customers are from 17 different countries around the world. We achieved great milestones between the quarters for the EngageLab business. I'm very proud of the hard work that the team has put in over the past quarter to record such impressive customer number and contract value growth. This is by no means an easy task considering the difficult overseas market environment and the uncertainty caused by the changes in the market. We continue to see strong demand for our EngageLab products overseas. Our EngageLab product is a non-store customer engagement platform, enabling our customers to use any of the following messaging channels: app push, web push, email services, SMS service, WhatsApp, and WhatsApp business API. Based on the feedback we've received, a key major advantage of our EngageLab product is that it allows our customers in different countries and regions to engage their own customers in an effective yet cost-efficient manner. We aim to ensure we stay ahead by continuing to fine-tune our products on a regular basis. More importantly, for us to meet and achieve our goal, we must meet our global customers' expectations. 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.

Shan-Nen Bong, CFO

Thanks, Chris. Next, I'll go over the revenue for Vertical Applications, which consists of financial risk management and market intelligence. Vertical Applications had a tough quarter, where revenue recorded a single-digit decline both year-over-year and quarter-over-quarter. However, for financial risk management, revenue grew 17% year-over-year and remained stable quarter-over-quarter. The 17% year-over-year revenue growth was positively impacted by a 26% customer number growth. In particular, one good trend we have observed is that the customer number has recorded sequential growth in every quarter of 2023. The Q4 customers that we have signed up include well-known names and many other licensed financial institutions throughout China. As for market intelligence, the revenue decreased 40% year-over-year and 10% quarter-over-quarter due to the continued diminished demand for Chinese-based app data as the investment sentiment towards Chinese ADR remains lackluster. Nevertheless, in this slow market condition, we still managed to sign up some well-known large customers. I'll now go through some of the key expenses and balance sheet items. On to operating expenses. The Q4 operating expenses were at RMB61.2 million, representing a 36% decrease year-over-year but slightly increased 2% quarter-over-quarter. Overall, we are very pleased with our expense control and monitoring efforts between the years. Our Q4 OpEx has decreased year-over-year by RMB34.2 million. This is a testament to our commitment to wisely spend every single penny. If you look at the OpEx on an annual basis, it has decreased by RMB108 million between the years, representing a 30% decrease year-over-year. This again shows the management's determination to effectively execute its cost-saving plans as previously announced. At this stage, the Company is well managed and ready for the next growth cycle with this relatively low OpEx. As long as we execute top line growth fairly well, I believe the group result will come sooner rather than later. Next, I'll go to the individual OpEx categories. In particular, R&D expenses decreased by 23% year-over-year to RMB27.1 million, mainly due to lower headcount and reduced salary costs and associated share-based compensation, and a decrease in server depreciation expenses due to the growing cloud initiative. Selling and marketing expenses decreased by 10% year-over-year to RMB22.1 million, mainly due to a decrease in salary costs resulting from headcount reduction as we further make adjustments to operate at the optimal level. General & Administrative expense decreased by 66% year-over-year to RMB12.1 million, primarily due to a one-time noncash impairment loss of RMB32 million recognized in Q4 of 2022. Further streamlining of headcount also contributed to the decrease in salary costs. For the quarter ended December 31, the adjusted EBITDA recorded another positive adjusted EBITDA in this quarter. This is a historical event where we have consecutive quarters of positive adjusted EBITDA. Our balance sheet shows two critical KPIs that we closely monitor. We continue to maintain a healthy AR turnover days at 38 days, which is a two-day improvement quarter-over-quarter. These two shortened days are significant as they let us collect cash from customers in an even shorter period of time. Secondly, one of the key financial KPIs we track for the performance of a SaaS company is total revenue, which represents cash collected in advance from customers for future contract performance that continues to hold a high balance of RMB141.5 million. This is the eighth consecutive quarter where our deferred revenue balance has exceeded RMB130 million, indicating we are collecting more cash in advance from customers, greatly improving our cash flow while simultaneously mitigating the risk of bad debt. In Q4 of 2023, we recorded a net operating cash inflow of RMB11 million and total cash inflow of RMB16.6 million thanks to our sales team actively collecting cash from customers and our tight control over cash spending. In summary, our total revenue and Developer Subscription revenue grew in every single quarter of 2023. Gross profit has also recorded sequential growth in all quarters of 2023. For the first time in history, we have consecutive quarters of positive adjusted EBITDA. Total annual operating assets decreased by RMB108 million between the years. And our EngageLab product is operating globally, signing up more customers and contracts each quarter. We have done many things right this quarter, and the results have shown as such. We are very pleased with the Q4 execution efforts and numbers. Nevertheless, we will not sit on our laurels. We will continue to execute our plan and deliver results. Lastly, before I conclude, I'll provide an update on the share repurchase plan. In the quarter ended December 31, 2023, we repurchased 53,000 ADS. Cumulatively, we have repurchased a total of 188,000 ADS since the start of our repurchase program. This concludes management's prepared remarks. We're happy to take your questions now, Christian.

Operator, Operator

We will now take our first question. The first question is from the line of Calvin Wong from Spica Capital. Please go ahead.

Calvin Wong, Analyst

First of all, congrats to your management for consecutive quarters of positive adjusted EBITDA. This is a great result, well done. I would like to have two questions, if I may. The first one is a follow-up on this adjusted EBITDA. I just want to hear from management how you see this adjusted EBITDA will trend going forward in 2024? That's the first question. And second question again on EngageLab. We have been tracking your EngageLab business every quarter. It seems that it has been doing great with better than our expectations in terms of customer number and contract value every quarter. So, we would like to know two things: A, are you expecting such explosive growth every quarter going forward; and B, what is the revenue contribution by EngageLab in this quarter?

Shan-Nen Bong, CFO

Okay. Thanks, Calvin. Let me take a minute to recap your question. So, you have two questions. One is on positive adjusted EBITDA and the other one is on EngageLab. Yes, let me take this question. Yes, I guess we are very pleased with the fact that we delivered another quarter of positive adjusted EBITDA in Q4 of 2023. As I said, this is a historical event for us since the IPO to have two quarters of positive adjusted EBITDA. This is possible due to the hard work that we are putting in every day, day in and day out. Besides the fact that you, our shareholders and investors, are thrilled to see this positive adjusted EBITDA we have recorded, if we peel through, the most important thing we’d like to deliver is the OpEx numbers over the four quarters. You’ll see one good trend there as mentioned. Between the years, the annual OpEx of 2023 and 2022 has decreased by RMB108 million. So in summary, we have saved or trimmed over RMB100 million in expenses in 2023 due to various cost-cutting initiatives that we have undertaken from headcount reduction and reviewing all expenses. We even reduced our office rental space. We have been working hard over the past year to seriously reduce our OpEx in the past 12 months. So, what this means is crucial. With much lower OpEx, we are in a good position for 2024. As I said, as long as we continue to grow our top line domestically or through EngageLab globally, I believe sooner or later the positive adjusted EBITDA will come as a natural course of events. This answers your first question. Regarding EngageLab, yes, I think we are doing very well. Chris mentioned he's delighted to see that things have been trending well. This growth is a result of our commitment and investment by the Company and dedication by the team to expand overseas. Let me recap the great achievement for Q4 for EngageLab mentioned earlier. Firstly, the contract value has grown 50% quarter-over-quarter, reaching RMB15 million by Q4. Secondly, the customer number has grown by 70%, totaling 170 customers between the quarters. This growth of 70% in customer number is impressive. Thirdly, our customers have come from 17 different countries around the world. We do have high hopes for this business to grow every single quarter. In addition to using ISV, Independent Software Vendor arrangements that I talked about last quarter, we have started sales teams in overseas markets to further solidify our position, including Singapore, where we just kicked off our expansion plan. We believe the overseas market, especially Southeast Asia, is where we can capture more market share due to proximity, familiar culture, and a high penetration of Chinese mobile phones. As for revenue contribution, it is not yet material since we recognize revenue based on amortization depending on the length of the contract, be it one or two years. However, the recognized EngageLab revenue has grown 8x from Q1 2023 to Q4, indicating significant exclusive growth. In summary, I want to convey that our EngageLab business is doing great. We will continue to invest in the necessary infrastructure to ensure rich service delivery and quality service and explore every market in Southeast Asia every quarter. Calvin, hope this answered your question.

Operator, Operator

We will now take our next question. This is from the line of Brian Kinstlinger from Alliance Global Partners. Please go ahead.