Earnings Call Transcript - JG Q1 2023

Operator, Operator

Thank you, operator. 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 or through Newswire services. 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 would now like to turn the conference over to Mr. Luo. Please go ahead.

Weidong Luo, CEO

Thanks, Christian. Good morning and good evening, everyone. Welcome to Aurora Mobile's 2023 first quarter earnings call. Before I comment on our Q1 results, I would like to remind everyone that the quarterly earnings deck is available on our website. You may refer to the deck as we proceed with the call today. Despite a challenging macro environment, we successfully concluded the first quarter of 2023 with business and social activities slowly recovering during 2023 following a shift in COVID policy towards the end of 2022. Some of our businesses were impacted to varying degrees. However, we are pleased to report that, so far in Q2, we have witnessed good momentum in revenue growth, especially from Developer Services. Although the external macro environment was murky during the first quarter, we have not stopped making our organization more efficient. We carried on with our strict cost management strategy and cautious hirings, flattened our management structure, and as a result, our overall expenditures have continued to drop year-over-year and quarter-over-quarter. We believe these efforts will improve our financial performance in the long run, which will also give us the space in a difficult environment to execute on our ambition. Here are some key financial results that I am proud to share. Lowest net loss since 2019 Q3 at RMB15.2 million, lowest adjusted operating expenses since IPO at RMB57.4 million, lowest operating expenses since IPO at RMB64.8 million, gross margin back to 70%, AR turnover days at 39 days, deferred revenue balance has been higher than RMB100 million for over 12 consecutive quarters. Total customer number remained stable at 4,527, up 1% year-over-year. Our effective cost optimization continues to earn noticeable financial results with the lowest net loss since 2019 Q3 at RMB15.2 million and adjusted operating expenses at a historically low point since IPO of RMB57.4 million. We also maintained a very healthy gross margin of 70%. Now, let me go through our different revenue streams. Developer Services revenues decreased by 24% year-over-year, mainly due to the weakness in value-added services, offset by the growth in Subscription Services. Subscription Services revenue were RMB37.5 million, up 9% year-over-year, mainly fueled by increasing ARPU. Subscription Services as our core business includes JPush, Analytics, UMS and other products, and despite the external uncertain macro environment, we signed up many well-known clients. Going into Q2, we expect some major recovery in Subscription Services, and we hope to see double-digit growth on a quarter-over-quarter basis. Value-added services revenue were RMB8.0 million, decreased by 69% year-over-year, which was a result of weak advertising demand. We believe advertising-related revenue will continue to be impacted by the uncertain and volatile macroeconomic environment. Moving on to our products and services. We have seen strong growth potential and interest in the EngageLab platform that we launched during Q4 last year. We have implemented various improvements to all the products under EngageLab. Recently, EngageLab has established a reliable network of data centers in multiple regions around the world to ensure that customers can choose the storage location that best suits their business needs. These data centers meet the highest security standards and have passed a rigorous certification and audit process. With the rapid growth in global data exchange, overseas customers have increasing data security and compliance requirements. In addition to Singapore, EngageLab has now added more data center options for overseas customers to deploy the push notification products, AppPush and WebPush. These include China-Hong Kong, Germany-Frankfurt, U.S.-California, Japan-Tokyo, South Korea-Seoul, UAE-Dubai, Brazil-Sao Paulo, and Australia-Sydney. Customers can select one appropriate data center to store data for an application based on comprehensive considerations, such as the location of their end user and regulations. We will continue to invest in technology innovation and global infrastructure building and are committed to providing our customers with the highest level of data security and compliance assurance. We are thrilled to report that EngageLab has attracted numerous valuable overseas customers and generated significant revenue and ARPU in just a few months. Encouragingly, new contributions from overseas customers continue to outpace those from domestic customers and we anticipate that our overseas business will be one of our biggest growth drivers going forward. Our products have been well-received by customers in multiple countries and regions, including the U.S., Malaysia, Thailand, and Singapore. Notably, well-known companies have become our valued customers. With this recognition from our customers, we remain committed to enhancing our products and services to enable global developers to achieve high-efficiency and cost-effective user reach. In addition to other achievement this quarter, we have launched our latest enhancement to JPush, the in-app messaging function. Unlike notifications that appear outside the apps, in-app messages appear within the apps, using pop-up windows and floating boxes to capture users' attention. This feature emphasizes user interaction and engagement, ensuring developers can be creative and retain their most valuable users. By using push notifications to bring users back to the app, in-app messages guide the user to interact with the app in a way that meets their expectations. With our app developer-centric strategy and through our ongoing improvements and iterations of products and technologies, we will continue to enhance the app experience and help mobile app developers address their operational and growth demands and provide a better user experience. With that, I will now pass the call to Shan-Nen, who will share more information about the Vertical Applications and other aspects of our performance.

Shan-Nen Bong, CFO

Thanks, Chris. As Chris has mentioned before, we are facing external uncertainties during Q2, and our Vertical Application business was also challenged this quarter. Vertical Application mainly consists of Financial Risk Management and Market Intelligence. Vertical Application revenues decreased by 22% year-over-year. For both Financial Risk Management and Market Intelligence segments, revenues were negatively impacted and decreased by 20% and 5%, respectively, year-over-year to RMB11.8 million and RMB7.2 million. Our Q1 revenue was impacted since many of our customers were not able to close contracts on a timely basis due to the COVID outbreaks. Going into Q2, we have seen recovery in the revenue from both sectors already. Under the challenging environment in Q1 of 2023, we were still able to set up various key customers, just to name a few. I will now go through some of our key expenses and balance sheet items. On to operating expenses. We are on track with our operational goal to becoming a more efficient company by centralizing our resources to focus on fewer but more important tasks. During Q1, adjusted operating expenses marked another all-time low since IPO at RMB57.4 million. Our net loss has also narrowed down to RMB15.2 million, the lowest since Q3 of 2019. All three components within the OpEx category recorded year-over-year and quarter-over-quarter reduction, in particular. R&D expenses decreased by 21% year-over-year to RMB31.7 million, mainly due to lower headcount that reduced salary costs and associated share-based compensation, and a decrease in cloud costs and depreciation expenses as a result of improvements and optimization of our cloud platform. Selling and marketing expenses decreased by 28% year-over-year to RMB18.9 million, mainly due to the decrease in headcount by 31. G&A expenses decreased by 49% year-over-year to RMB14.3 million, mainly due to a RMB8.4 million decrease in personnel costs, the RMB2.9 million decrease in professional fees, as a result of our strict cost management control strategy, and a RMB1.8 million decrease in bad debt provision as a result of our company-wide consistent efforts on strict financial control measures. Adjusted EBITDA, calculated as EBITDA excluding share-based compensation, reduction in force charges, impairment, improved by 9% year-over-year to negative RMB7.5 million. On to the balance sheet. I will again share two very important KPIs that we closely monitor. We continue to maintain a healthy AR turnover days level at 39 days. Usually, Q1 is a slower quarter because of the Chinese New Year holidays, but I'm glad to see that our persistent payment collection policy works effectively during the period. Secondly, one of the key financial KPIs for tracking the performance of SaaS companies is total deferred revenue, which represents cash collected in advance from customers for future contractor performance, again, ended the quarter on a high note at RMB133.8 million, and this is the 12th quarter our deferred revenue balance has exceeded RMB100 million. Healthy cash flow aside, the level of deferred revenue also signifies that our business is in great shape. Our customers have continued to buy our products and services quarter-over-quarter, year after year, and we are very pleased with the trending of this deferred revenue balance. Next, total assets were RMB396.4 million as of March 31st, 2023, this includes cash and cash equivalents of RMB88.4 million, accounts receivable of RMB26.4 million, prepayments and other assets of RMB33.7 million, fixed assets of RMB11.9 million, long-term investment of RMB141 million, goodwill of RMB37.8 million, and intangible assets of RMB22.3 million resulting from a share of SendCloud acquisition in March 2022. Total current liabilities were RMB238 million as of March 31st, 2023, this includes short-term loan of RMB5 million, accounts payable of RMB18.4 million, current operating lease liability of RMB18.2 million, deferred revenue of RMB131 million, and accrued liabilities of RMB65.2 million. Lastly, before I conclude, I'll give an update on the share repurchase plan. In the quarter ended March 31st, 2023, we repurchased 194,000 ADS. Cumulatively, we have repurchased a total of 1.39 million ADS since the start of our repurchase program. And this concludes the management's prepared remarks. We're happy to take your calls now.

Unidentified Analyst, Analyst

Good evening, management. Thank you for taking my questions. I would like to have two questions, if I may. Two questions related to financials. First of all, about OpEx, we noticed that the Company continues to record historical low on your GAAP and adjusted OpEx. Just wonder how did you do that? Did you make a further headcount reduction? If so, how will the reduced workforce impact your business operations? And a related question is, do you expect to see further reduction in OpEx in the coming quarters? How low could that go? So that's question related to OpEx. Another question is related to your revenue. We saw a dip in revenue year-on-year and quarter-on-quarter. Of course, management has already made a very good explanation on the reasons behind. So what we would like to know is, going forward, what will be the revenue growth drivers? So two questions, one on OpEx, the other on revenue.

Shan-Nen Bong, CFO

Thank you for joining the call. This is Shan-Nen. I will address your questions now. From a financial standpoint, we are pleased to report that we have once again achieved GAAP and non-GAAP adjusted operating expenses at a low level this quarter. We accomplished this through a couple of effective strategies. Firstly, our Going-Cloud project was successfully executed, allowing us to reduce a significant amount of depreciation related to server expenses, which is crucial. In recent years, we have spent around RMB10 million annually on servers, but with our Going-Cloud initiative over the past year, we no longer need to incur those costs. Now, for the cloud servers we utilize, we only pay based on our consumption, which has greatly improved our cash flow. Secondly, we have implemented strict cost control measures over the years, resulting in reduced headcount and careful evaluation of all our expenses. Looking ahead, we do not expect to make further significant reductions in headcount and feel comfortable with our current staffing levels to maintain operations. Regarding your question on how low our operating expenses could go in the future, we believe our expenses are currently at an optimal level, and we do not anticipate significant decreases in operating expenses each quarter going forward. As for your second question about the revenue dip and future growth drivers, as Chris mentioned earlier, we see significant opportunities in our overseas business, particularly with our EngageLab products. Our internal research shows that approximately 15% to 20% of our sales leads now come from overseas, which will significantly impact our revenue. Additionally, the percentage of new contract values from overseas customers has increased threefold from 3% to 10% in Q1 2023, indicating strong growth. This upward trend has continued into Q2, where the contribution percentage has further improved. We believe our overseas revenue will be a key growth driver in the future. However, we continue to focus on our core Developer Services, which remain vital for our stable cash flow and revenue. I hope this addresses your questions.

Unidentified Analyst, Analyst

Yes, very clear. Thank you.