Aurora Mobile - Q2 2024

Transcript

René Vanguestaine (Co-Founder)

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 irjiguang.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.

Weidong Luo (Chairman and CEO)

Thanks, René. 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 that is available on our IR website, you may refer to the deck as we proceed with the call today. Following our quarterly ER 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 great Q1 head start, we record the fourth consecutive quarterly positive Adjusted EBITDA. This is an historical achievement for us since our IPO in 2018. Secondly, developer subscription revenue record both 14% growth quarter-over-quarter and 90% growth year-over-year. Thirdly, our gross profit record good growth, both year-over-year and quarter-over-quarter.

Fourthly, 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 of more great results in the future. Let me expand further. Our total group revenue has grown both quarter-over-quarter and year-over-year by 23% and 8%, respectively, and we have seen great growth trajectory for both the developer services and vertical application business. All our business, mainly subscription services, value-added services, and vertical applications, recorded quarter-over-quarter revenue growth. These three businesses also recorded year-over-year increase, except 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 90% year-over-year and 14% quarter-over-quarter. Value-added services revenue grew by 245% quarter-over-quarter and decreased 28% year-over-year. Subscription services revenue of RMB 48.1 million grew strongly by 90% year-over-year and 14% quarter-over-quarter. The year-over-year and quarter-over-quarter revenue growth was mainly driven by increase in ARPU. This was the result of a combination of signing up higher value contracts and completion of private cloud projects. Another major contributor of this impressive revenue growth was the solid performance of our EngageLab business.

The EngageLab recognized revenue grew more than 500% year-over year and 69% 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 not limited to, China Southern Airlines, Tiger Brokers, Zhangjiagang, Zhangjiakou Bank, and Changchun Zhenjiang, just to name a few. Value-added services revenue were RMB 8.3 million, increased by 245% quarter-over-quarter and decreased by 28% year-over-year. The sequential increase was due to the New Year 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 expand more on 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 numbers has recorded a tremendous, tremendous 75% growth, reaching 390. We truly believe our EngageLab is a superior product, where our reliability and high delivery are addressing global customer needs effectively. We saw many new customers switching to our EngageLab platform from competitors due to our product core competency. Secondly, the cumulative signed contract value of EngageLab, EngageLab grew by another RMB 4.5 million quarter-over-quarter. Cumulatively, the total contract value signed up to June 30, 2024, amounts to more than RMB 41 million. This growth momentum has exceeded our expectations, and we plan to seize this growth opportunity with our forecast. Thirdly, 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 are 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 into other Southeast Asia markets, such as Thailand and Malaysia. This will no doubt 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 on our overseas expansion effort. As previously mentioned, Shan-Nen and I attended Tech in Asia in Singapore in person in late May.

Since then, we have received many invitations to attend similar Tech Expos in Southeast Asia. From what I know, we have been invited to attend the tech events Expos, one in Thailand, one in Hong Kong, and two in Singapore. There are more in the pipeline. We find it very effective for us to expand, chat, and share in person with prospective customers during these expos, where we can demonstrate our products and answer any questions on the spot. We saw great sales leads conversations from the Singapore Tech Expo in May. Therefore, 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.

Shan-Nen Bong (CFO)

Thanks, Chris. Next, I'll go over the revenue for vertical application that includes financial risk management and market intelligence. Overall, vertical application recorded 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 needs for risk management and control has been on the rise since the beginning of 2024. This is in line with our expectation.

When purchasing services from various vendors like us, financial sector customers will secure and always allow multiple sources of quality data stream to strengthen their risk models, thus these are not exclusive relationship. Therefore, we can grow this business even with the coexistence of peers in this industry. The quarterly revenue recorded growth. This is the sixth consecutive quarter since Q1 of 2023. The customers that we sign up or renew in Q2 include Ping An Xiaojin, Zhongguancun Yinhang, Zhongxin Xiaojin, Zhongan Baoxian, 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 sign up a few new and renewed contracts from some of the well-known large customers, such as ITA and many top-tier global hedge fund and investment funds such as Point72, BroadPeak, and SRS Investment. Next, I'll go through some of our key expenses and balance sheet items. Onto operating expenses. The Q2 operating expenses was at RMB 54.8 million, representing a 15% decrease year-over-year and 3% increase quarter-over-quarter. While we have done a great job of cutting expenses over time, we understand some of the expenses will grow occasionally. For example, we are more than happy to see commission paid to our sales and marketing department to grow every quarter, because that means that they are meeting or exceeding the revenue targets that we have set for them.

Thus, we will welcome expenses growth in specific area, which demonstrate healthy business growth. I'll go through the individual OpEx category now. For R&D expenses, decreased by 22% year-over-year to RMB 23.7 million, mainly due to the 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 RMB 20.5 million, mainly due to the increase in sales commission in line with higher revenue. G&A expenses decreased by 23% year-over-year to RMB 10.7 million, mainly due to the lower share-based compensation expenses and professional fee incurred. For the quarter ended June thirtieth, 2024, 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 straight consecutive quarters of positive Adjusted EBITDA. Trust me, this is not an easy achievement, especially as the overall economy has been relatively soft. I have to attribute this to the great Go Overseas initiative that we have undertaken since 2023. The EngageLab business expansion has no doubt proved to be a great revenue growth driver. Onto the balance sheet. I'll share two of the other important KPI as well that we closely monitor. We continue to maintain a healthy AR turnover days level at 43 days, which are four days reduction compared to Q1 of 2024. We are very pleased with this low AR turnover days number. We continue to work hard to ensure we collect cash actively from customers, and at the same time, mitigating the risk of bad and doubtful debts.

Secondly, one of the key financial KPI for tracking the performance of SaaS company is the total deferred revenue, which represent cash collected in advance from customer for future contract performance, which remain high at RMB 135.1 million. And this is the 10 consecutive quarters where our deferred revenue has exceeded RMB 130 million. Next, total assets were at RMB 335.1 million. This includes cash and cash equivalent of RMB 92.7 million, accounts receivable of RMB 43.1 million, prepayments and other current assets of RMB 20.8 million, fixed assets of RMB 1.1 million, long-term investment of RMB 113.2 million, goodwill of RMB 37.8 million, and intangible assets of RMB 15.8 million, resulting from the SendCloud acquisition in March 2022.

Total current liabilities were at RMB 228.2 million. This includes accounts payable of RMB 26.6 million, current operating liabilities of RMB 2.8 million, deferred revenue of RMB 135.1 million, and accrued liabilities of RMB 60.7 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" description. 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, where we recorded four consecutive quarters of positive Adjusted EBITDA.

Last but not least, our EngageLab business recorded customer growth of more than 75% quarter-over-quarter, and cumulative contract value grew more than RMB 4.5 million between the quarters to more than RMB 31 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. And this concludes our prepared remarks. I will be happy to take your question now. Operator, please proceed.

Operator (participant)

Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will take our first question. Your first question comes from the line of Calvin Wong from Spica Capital. Please go ahead. Your line is open.

Calvin Wong (Equity Analyst)

Good evening, management, and, thank you for taking my question. And, first of all, congrats for delivering another set of great results. I'd like to have two, if I may. If we look at the, this quarter's result, 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 have contributed to these set of good numbers? And two, any guidance on the Q3 numbers?

Shan-Nen Bong (CFO)

Okay. Thanks, Calvin. Let me take questions. Yes, we believe we have, we have done a great job for our investors and our shareholders. If looking at just purely on the four consecutive quarters of positive Adjusted EBITDA that we have managed to record, and if I may, in the game of tennis, this would consider to be a grand slam for making four in a row. But of course, the actual work was done or planned and started long before four quarters ago, and we are now delivering the good results. And if I look at the, this set of numbers from high level, like 5,000 ft level, there are two groups that this group Q2 results is attributable to two factors. One is we organically grow our business.

Two, we are operating our business efficiently in the current environment. As mentioned during the call earlier, three of our business line, namely subscription revenue, value-added services, and vertical application, recorded good and solid revenue growth quarter-over-quarter, and more importantly, I think our core business, namely the subscription business, which contributed approximately 60% of our group's revenue, grew both quarterly, both quarter over quarter and year over year, due to the increase in customers number and ARPU. As mentioned by Chris earlier, our EngageLab business has been the star of the quarter. In Q2, the book revenue has grown for more than 500% year-over-year, driven by a 300% growth in customers number. Our value-added service, on the other hand, benefited from the spike in the demand due to the 618 online e-commerce festival.

I have mentioned that the financial risk management also had a great quarter, and we recorded a consecutive growth for the past five quarters. This was mainly due to the steady trend of more financials sector customer are buying our services as a key input to their risk model. As for the OpEx, yes, we are continuing to manage our business well. Revenue grew by 23% year-over, quarter-over-quarter, while OpEx only grew by 5% quarter-over-quarter. And this is a trend we would like to see. So long as our revenue is growing at a much faster pace than our OpEx, I think the profitability will show up in the books sooner or later. But our job is not done.

I think we still strive to make expansion overseas as a main growth driver by signing up more overseas customers and getting customers to renew at a higher contract value. At the same time, we shall continue and meaningfully to spend every single dollar to ensure operationally efficient. And for the second question you have on the Q3 forecast, I think we shall not get ahead of ourselves. I think what we have done is, we have proven to the public, quarter over quarters, again, over again, that our execution capability and how we can stick closely to our strategy and deliver financial results. Therefore, short of giving out promises, what I will say is, we'll continue to follow our proven strategy to grow our business overseas and domestically. And hope this answer your question, Calvin?

Calvin Wong (Equity Analyst)

Very clear. Thanks.

Operator (participant)

Thank you. We will take our next question. Your next question comes from the line of Jackson from Gelonghui Research. Please go ahead. Your line is open.

Congratulations on strong quarter. I'm Jackson from Gelonghui Research. I've got a question on EngageLab. EngageLab recorded a strong quarter in terms of customer number and contract value. What would be the outlook for EngageLab in the next few quarters? Thanks.

Shan-Nen Bong (CFO)

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. And 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 number and contract value. Before I go to the outlook that you were looking for, maybe I should do a revisit of the current EngageLab business landscape. Let me spend a few minutes here. Currently, our EngageLab business is growing every quarter for the following reason. I think, one, we have a great suite of products and services that help our customers to engage with their own users in an efficient and cost-effective manner.

And two, we have a competitive advantage of sending notification to certain brand of Chinese mobile devices that our U.S. competitor are not able to. Three, we have multiple channel engagement solution that effectively cover all user engagement scenario, such as app push, web push, we have SMS, we have emails, we have OTP, and we have WhatsApp Business API. And with the above, I think we are addressing the needs of our customers, and that is key. Because customers are only willing and likely to buy our services because we meet or exceed their expectation on user engagement. And in addition, I think we are getting new customers and businesses through both Chinese companies venturing overseas and local companies in their respective countries. We do see great opportunities to, for us to expand and grow every quarter.

Based on our research, the overseas market demand, which is also you can call it a TAM, Total Addressable Market for EngageLab or notification business, is huge, and we intend to grab this good portion of the market in Southeast Asia. And so my answer to your question, what I would say is, we are very hopeful for this business to have continued growth every single quarter in the near future. I guess with us getting more additional headcount in salesperson in Singapore and Malaysia, we can reach out to more customers overseas. Therefore, I'm very confident that our sales team in the overseas market will sign up more customer in the near future. And Jack, I hope this answer your question.

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

Thanks.

Operator (participant)

Thank you. As a reminder, if you wish to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. Once again, if you wish to ask a question, please press star one and one on your telephone. There seems to be no further questions at this time. I'll now hand the call back to Rene Vanguestaine for closing remarks.

René Vanguestaine (Co-Founder)

Thank you, Heidi. 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.

Operator (participant)

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