Aurora Mobile Limited (JG) Q4 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Aurora Mobile Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Rene Vanguestaine. Thank you. Please go ahead, sir.

Thank you, Amber. Hello, everyone, and thank you for joining us today. Aurora's earnings release was distributed earlier today and is available on our IR website, 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 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 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 statements 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.

Thanks, Rene. Good morning, and good evening, everyone. Welcome to Aurora Mobile's 2022 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. Before looking at the fourth quarter, I would like to reflect upon our journey in the past couple of years in a challenging environment caused by pandemic, what we did right, what we learned, how we came from the toughest time, and how much we can grow as an organization. I'm proud to say that we came out of the difficult times and became more resilient and efficient. Along the way, we have been constantly reviewing our overall strategy, not afraid of making necessary decisions no matter how tough to ensure we are always on the right track to long-term growth. Throughout this effort, our revenues and margins remained strong as we improved gross profit, while tightly controlling and lowering or pass. We started a fresh as a pure SAAS business in Q1 2021, a major transition period, we didn't stop innovating and harnessing our core business line, Developer Services. This really is bringing us rewards for the long run. I will give you more details later with economic uncertainty going globally. In mid-2021, we acted quickly and proactively to make our organization stronger and nimbler by enacting restructuring and strict cost management across the company. We're also glad we made these decisions, and our efforts are reflected in our financial results. Let me share some of the key results with you. Second positive adjusted EBITDA since 2021 Q4 at RMB 0.6 million. All business, including Developer Services, Subscription, Value-add Services and Vertical Applications have record Q-o-Q growth. Highest gross profit in 2022 at RMB 59.8 million. Lowest adjusted operating expenses since IPO for the past 18 quarters at RMB 52.8 million. Lowest adjusted net loss since Q3 of 2019 at RMB 6.6 million, improved by 18% year-over-year. AR turnover days at 32 days lowest since IPO. Deferred revenue balance is the highest in the history of the company at RMB 142.4 million. Total customer number up 70% year-over-year to 4,719. I am thrilled to report revenue growth in Q4 2022. Total revenue rose to RMB 86.9 million, up 8% quarter-over-quarter, and both Developer Services, our core business and vertical applications have achieved sequential growth with the biggest revenue growth contribution by Developer Services at 11%. In this quarter, we recorded the highest quarterly revenue of 2022 and lowered our adjusted OpEx bringing the cash component of OpEx to a historically low level. With that, our adjusted EBITDA was positive for the second quarter since Q4 2021 at RMB 0.6 million, significantly improved by RMB 7.3 million from negative RMB 6.7 million in Q3 2022. Our adjusted net loss was also the lowest -- the lowest since Q3 2019 at RMB 6.6 million improved by 18% year-over-year. Furthermore, we ended this quarter on a higher note with more than RMB 142 million in total deferred revenue our remaining performance obligations up 15% versus last year. This is a set of impressive financial numbers for Q4 2022 that our team has worked hard to achieve. And it showed that we are running the business well. I sincerely believe more good things will come. We are confident that the end of the COVID 0 policy in December 2022 marks the beginning of China's emergence from the pandemic. Even though there may be some short-term hearings, this, we believe, has put the country on a path to return people's life to normalcy and resume pre-COVID levels of consumer, social and economic growth. Therefore, the outlook for renewed consumer activities and a gradual recovery of our business in 2023 is very promising. Now let me go through our different revenue streams. Developer Service revenue increased 11% quarter-over-quarter to RMB 63.2 million, which was mainly due to the increase in both Subscription Services and Value-added Services. Year-over-year, Developer Services revenue decreased by 1.5%, mainly due to the weakness in Value-added Services, offset by the growth in Subscription Services. Subscription Services revenue were RMB 46.3 million, up 11% quarter-over-quarter and up 4% year-over-year. Subscription services, our core business line includes JPUSH, Analytics, UMS and other products and services that help App developers and enterprises to improve operational efficiency. Our private cloud service revenue increase has contributed to the Subscription revenue growth, and we were able to bring a number of renowned customers on board, including but not limited to [Indiscernible]. The increase in ARPU also contributed to the growth in revenue, and we managed to grow our customer base with several well-known and sizable customers like IPA, [Indiscernible], and J&T Express, just to name a few. Since the launch of the overseas service platform EngageLab in October we have seen encouraging trends and customers have been expressing their strong interest in our products. We are expecting stronger revenue growth going into 2023, and we will continue to improve our products and services to help global developers with higher efficiency and cost-effective user reach. As I mentioned earlier, we are anticipating consumer activities to recover further in 2023. During Q4, we already saw some growth in our value-added services revenue which is a good indicator of overall reviving consumer activities. The value-added services revenue increased quarter-over-quarter by 10%, and it was the first quarter-over-quarter growth in 2022, a major positive sign for us. Year-over-year revenue was down 44% to RMB 16.9 million, and we expect the year-over-year growth trend will continue to recover in 2023. Major customers of the JG Alliance services consisted of repeated customer and market leaders across many industry verticals. Key customers include BAT, Baidu, Alibaba, Tencent, Xiaoshan Bank and Juhu. For our Adpub that was launched back in Q2 2022, we are seeing more and more interest from various apps over 10 million DAUs joined our platform by the end of this quarter. Growth in DAUs of over 300%. And as the overall economy recovers in China, we believe that more DAUs will join our platform going forward. Another exciting news, which also marks a major milestone for us. It's our pioneer work in integrating the ChatGPT technology in our JPush, our push notification solution and in our e-mail and SMS service platform. Today, AI has become the cornerstone of many products and services, and it is very important for us to be one of the first movers in applying AI technology. Our proactive integration of interactive language model technology and AIGC really give us the edge and a great opportunity to make our products smarter further benefiting all our customers. For a long time, a critical concern of developers has been how to attract users' attention for creative high-quality push content and information click-rate and user conversion. The AI creation to resulting from the integration of ChatGPT into JPush delivers a powerful solution. Using these 2 developers can quickly tap into the AIGC generating a personalized intelligent push content to achieve high click-through rate and high conversion, effectively improving the efficiency of user reach and engagement. And for our e-mail service, integrating ChatGPT will enable customers to generate AIGC personalized e-mail content according to the recipient information profile and preference. The upgraded e-mail services will not only improve the readily and attractiveness of e-mails, but also increase the response rate and conversion rate of e-mail thereby helping our customers interact with their target users more effectively and achieve higher marketing success. Furthermore, earlier last month, we became one of the first ecosystem partner of ERNIE Bot, a generative AI chatbot developed by Baidu. We will assess ERNIE Bot and apply Baidu's leading intelligent dialogue technology in our customer engagement and marketing technology surfaces. This initiative is an additional step in our implementation of our AI-driven strategy with the support and empowerment of leading AI chatbot technology. As an ecosystem partner we will be given priority for internal testing with ERNIE Bot and we will integrate ERNIE Bot in our products. Many of renowned companies has joined our new broad ecosystem, including [Indiscernible] Automobile, Xiaodu, High Enterprise Solution, India, [Indiscernible] and PC Auto. It's clear that going forward, our businesses are getting ready for this new mega AI trend. We will also carry out in-depth research and development in ChatGPT-related technology, realize interactive dialogue similar to real people for ChatGPT technology and further improve the richness of our push message, e-mail and SMS content to empower the great conversion rate and marketing engagement. With that, I will now pass the call over to Shan-Nen, who will share more information about the vertical application and other aspects of our performance.

Thanks, Chris. I would like to echo Chris' comment on our revenue trend. With our relentless effort in developing our core developer service, we see a very promising recovering trend in Q4 and going forward. Not only in Developer services, we've also seen sequential growth in vertical application revenues, especially in Market Intelligence. Vertical applications mainly consists of financial risk management and market intelligence. Vertical application revenue increased by 1% quarter-over-quarter and decreased by 11% year-over-year. In the Financial Risk Management segment, the revenue decreased by 14% Q-over-Q to RMB 12.4 million and decreased 25% year-over-year. The decrease in financial risk management revenue was due to many of our customers' consumption were impacted by COVID outbreak in November to December last year. We are not too worried about financial risk management revenue in 2023 as we believe the decline in Q4 was temporary, and we are already seeing recovery in consumption so far this year. Our Market Intelligence Services delivered strong revenue growth, up 16% quarter-over-quarter and 27% year-over-year to RMB 10.4 million. During this quarter, our revenue increased as a result of recovery in customer spending and the addition of many well-known and sizable new clients. Furthermore, our strategy of focusing on KA customers has helped us gain additional market share. The big and renowned customer that we signed up in this quarter include, among others, Tencent, Baidu, Baba, Zhongxin Securities and Sentosa. I'll now go through some of the key expenses and balance sheet items. On to operating expenses. As Chris mentioned earlier, our strategy of active and stringent cost management proved very wise, and our quick action helped us to maintain as a nimble organization. We have had another historical low quarter in terms of operating expenses. Excluding noncash impairment loss of long-lived assets at RMB 73 million, down 21% year-over-year. All 3 components within OpEx category recorded year-over-year noncash reduction in particular, R&D expenses decreased by 22% to RMB 35 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 improvement and optimization of our cloud platform. Selling and marketing expenses decreased by 26% to RMB 24.5 million, mainly due to decrease in head count by 39%. Marketing expenses and salary costs decreased accordingly in this quarter. G&A expenses increased by 149% to RMB 35.9 million, mainly due to a RMB 22.4 million noncash increase in the long-lived asset impairment due to onetime costs for going cloud in this quarter. Our adjusted EBITDA delivered second positive quarter since Q4 of 2021, positive RMB 0.6 million. A company-wide prudent and deliberate hiring and expenses control strategy has helped us maintain a comparatively low operating expenses level. And let me recap some of the highlights of this quarter, and we achieved lowest adjusted operating expenses since IPO at RMB 62.8 million, down 19% year-over-year. We had the lowest adjusted net loss since Q3 of 2019 at negative RMB 6.6 million, improved by 18% year-over-year. We had a second positive adjusted EBITDA since '21 Q4 at RMB 0.6 million improved by RMB 7.3 million quarter-over-quarter. And on to the balance sheet. I will share 2 very important KPIs that we closely monitor. Firstly, the AR turnover days decreased from 38 days in Q3 to 32 days which is the lowest AR turnover days since IPO. I have to pay tribute to our team who has been working hard and diligently to collect payments from our customers on a tiny basis. Maintaining a low AR turnover days level is very important. And it means that we have short cash collection cycle, which help us to mitigate risk in best and doubtful debts. Secondly, one of the key financial KPIs for tracking performance of SaaS companies is total deferred revenue, which represents cash collected in advance from customer for future contract performance where we recorded another highest balance in the history of the company standing at RMB 142.4 million. And this is the 11 consecutive quarters that our deferred revenue has exceeded RMB 100 million. In addition, this quarter also marks the 7 quarters that we have deferred revenue with continuous sequential growth which is another great source of cash flow for us in such a challenging time. And healthy cash flow aside, the level of deferred revenue also signifies that our business is in great shape. Our customer has continued to buy our services quarter-over-quarter and year after year, and we are very pleased with the trending of this deferred revenue balance. Next, total assets were at RMB 420.9 million at December 31, 2022. And this includes cash and cash equivalent of RMB 116.3 million, accounts receivable of RMB 29.7 million; prepayments and other current assets of RMB 30.4 million, fixed assets at RMB 14.9 million; long-term investment of RMB 141.9 million. Goodwill of RMB 37.8 million and intangible assets of RMB 23.9 million resulted from the SendCloud acquisition in March 2022. And total current liabilities were at RMB 249.6 million as of December 31, 2022. This includes short-term loan of RMB 5 million; accounts payable of RMB 18.2 million; deferred revenue of RMB 138.8 million; and accrued liabilities of RMB 87.6 million. And lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended December 31, 2022, we repurchased 246,000 ADS. Cumulatively, we have repurchased a total of 1.19 million ADS since the start of our repurchase program. And this concludes the management's prepared remarks. We're happy to take the questions now. Operator, you may proceed.

[Operator Instructions] Our first question comes from the line of Brian Kinstlinger from Alliance Global Partners.

Good to see the recovery in your businesses. Can you first talk about the strategic partnership with WhatsApp in your first slide, and maybe I missed it. Can you discuss how and which segments this might drive revenue growth as you see it?

Sure. Brian, this is Shan-Nen. Based on what we have collected from our customers, especially overseas, a lot of our customers are not able to tap on to WhatsApp communication channel. Probably, as you know, outside of China, WhatsApp is huge in Southeast Asia, even the entire Asia, ex-China. So what we are helping the customer to do is they are able to -- as part of the communication channel besides the so-called push notification, they are able to tap on to the channel managed by WhatsApp to reach their users. So this is something that they are able to -- we are able to help them do, ensure that they reach the click-through rate or the usability rate is much higher. So this is something that WhatsApp is happy that we are able to help them as well to reach more customers. So along that, a lot of our customers are waiting for us to launch this new product, which is already in the market. So what we are doing is we will be able to charge our customers for the communication channel done through WhatsApp channel. And of course, with that, we need to pay a expense or cost to WhatsApp, too.

So essentially, you're going to be able to send push notifications through WhatsApp. Is that right?

Correct. So this is something that in the event that the traditional push notification doesn't get to the customers are able to use the WhatsApp channel to reach their customers.

Now for existing customers that are using push, will this drive increases in the rates they pay? Or will it just be part of the service they already get?

Yes, it will be an increase. We will charge every single push notification done through WhatsApp. So there will be additional cost to the customer, additional revenue to us.

Great. And then maybe you can talk about that ChatGPT and with your push and SendCloud, how are the services operated before ChatGPT? Was it not automated or intelligent?

No, what we're seeing is probably, as you know, AIGC is very huge for the past 2 months. So they can come up with really creative answer for whatever question that you ask. So what we are seeing is customers are asking us to see if we are able to tap on to ChatGPT's brain so to speak. Because what they are doing is they are seeing -- they really need some creative content for their push so that to improve the click-through rate. So how do they do that is they are able to use our service to tap on to ChatGPT's content creative side. So which means that for a traditional customer, they used to be having to come up with their own push content themselves, which might not be creative at all. So what they're able to do is through our service, they can ask ChatGPT to create, say, like 5 optionality in terms of content provision so that they can choose the best to suit their case. So they are able to tap on to that. And with that, they are able to send through their message with the hope that there'll be better click-through rates for that. So in a similar fashion,-- yes, for a similar fashion for the e-mail, our customer who uses the SendCloud ChatGPT link, they're able to customize, they use the ChatGPT's AIGC to come up with a template so that they can better customize their e-mail to send to their users, which will be, hopefully, at a better click-through rate and a better result for the customers. So this is something that we are seeing a lot of customers are asking for this service. And probably, as you know, these services are not available in China as yet. So we need to -- so we have a great opportunity here to help our customers to get around this issue.

Great. That's super helpful. Can you talk about the advertising market in China. I know we saw a small recovery in the fourth quarter for revenue sequentially for value-added services. So maybe talk about the trends you're seeing today in advertising and how you see that recovery in 2023.

Yes. As you see, the quarter-over-quarter, we've achieved sequential growth, which is really encouraging. But if you look ahead for the next 12 months, we still see some weakness or headwinds in the advertising space. As it is more so for us because our platform is not as huge as Tencent or the other bigger player. So I think we do not expect it to be back to, say, like 2020 or '21 level, but I'm sure will be better than 2022.

Got it. Outside of that, maybe you did see sequential growth in basically all your business lines. First, we got the holiday in the first quarter. So maybe should we expect seasonality in the first quarter in each segment. And then do you see gradual improvement in each of them. Maybe just touch on the segments. I know you don't give revenue guidance, but maybe from a high level, talk about the segment's outlook for the year.

So the short answer to your both questions is yes, yes. So yes, we do expect to see a seasonality low in Q1 because of the Chinese New Year and the holidays in the shorter month in February. That is what we expected. Going forward, yes, we do anticipate Q2, Q3, Q4 to see uptick. Going forward, as 2023 versus 2022, yes, we do expect all business lines to achieve at least a single-digit growth.

Our next question comes from the line of Kelvin [Indiscernible] capital.

I would like to ask 2 questions, if I may. First of all, of course, we have already seen very encouraging results from many aspects. Maybe the company could share with us how you have achieved these set of good numbers. That's the first question. And the second question is a follow-up on this partnership with WhatsApp and platform that -- will there be any other going overseas initiative which is on the table. And if yes, what's the progress of the other going overseas initiatives.

Okay. If I recap your question -- the first question is you're asking what are the things that...

The drivers for the encouraging numbers for last year and Q4. And the second question is more -- any more color on the going overseas initiatives?

Sure. Okay. Sure. I think if you look at the Q4 numbers, I think there are a lot of things that we have done right. So maybe I can just give you the top 3 that internally as an organization, we talk about it and we reflect it on ourselves and how -- what we have done right. And so these are the 3 things. First, I would say is staying focused so what I meant is doing what the market and customer want and do it well. So probably to note despite a very tough environment for past 2 or 3 years, we have been laser-focused on our subscription business. So we continue to develop new functionality and new features to help our customers to operate at a higher efficiency. And as well as Brian has asked earlier. So as soon as we see the ChatGPT become widely available, so we are the first to incorporate the access of ChatGPT to our customers. So this is very important. So all our customers are appreciative that we have this functionality for them. And secondly, if I think what we did right is making the tough decision at the right time. And probably as you have heard for the past couple of earnings calls, we started to reexamine our cost structure as soon as we see the pandemic is staying here longer than what we expect. So during that time, we restructured many departments internally and regrouped the few departments where possible. So in the process, we have trimmed our headcount significantly from a high of, I think, 620-ish employees in 2021 to 415 last month. So this is a very tough decision that we have to make. But if you look back, it was necessary and it was timely. And I think the third is we have executed our cost-cutting initiatives continuously. I believe that the impact of cost savings is minimal, if it's only a onetime exercise. For us in [Indiscernible], the mentality of cost-conscious is embedded in all departments, be it from the sales VP, all the way to our admin staff. Everyone is tightly controlling all the expenses. And this is important because we need to stay afloat, we need to have a sustainable business model for long-term profitability. I guess in summary, I'll just recap what we have read earlier in the earnings call. For those things that we have done well. So that's the reason why this quarter we have achieved quarter-over-quarter revenue growth in all business lines. We have the highest quarterly revenue and gross profit in 2022. And again, we achieved the lowest adjusted OpEx since IPO. And last but not least, we have the adjusted EBITDA turn positive this quarter. It was a bit long-winded, but I hope it answered your question. Secondly is on the growing overseas. Yes, this has been pretty popular, and we have been asked by a lot of analysts and investors for the past month or so. In summary, let me conclude the going overseas update. So based on the latest number we are seeing, since we started going overseas in second half of 2022, we have achieved a few milestones that are allowed to share on the call. One is we have signed up more than 50 contracts with overseas customers. All the customers for the contract values are higher than those in China, and we do not offer free trial service overseas, which means that all users of our services overseas are fee paying customers. And also at this stage I'd like to elaborate more on how we are doing in terms of how we compare to our peers. And for us, we have actually invested infrastructure overseas to service and support our customers. So we are not just lip servicing that we are going overseas. So we do actually have made investment in the overseas venture. And secondly, we have the actual product, which is called EngageLab that we launched in Q3 of 2022. And again, WhatsApp, which is a mainstream and very popular overseas, is one of our communication channel that we can help our customers to reach their users. And number 4 is we are well versed in the legal requirement in all the Southeast Asia country on data privacy that we can help our customers to better manage their data risk. And lastly, with our current presence in Singapore, we can effectively and efficiently help our customers to cover the entire service region. So with that, I think we are very confident that we'll do well in the overseas market. Definitely, we will provide more colors of this segment in the future quarters earnings costs.

[Operator Instructions] I'm showing no further questions. I will now turn the conference back to Rene for closing remarks.

Thank you, Amber. Thank you, everyone, for joining our call tonight. If you have any further questions and comments, please don't hesitate to reach out to the IR team. This concludes the call. Thank you.

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