Aurora Mobile Limited (JG) Q2 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Aurora Mobile Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host today, Rene Vanguestaine. Thank you. Please go ahead, sir.

Hello?

Rene, go ahead.

Shan-Nen, we can start?

Yes, yes, go to the forward-looking statement.

Heidi, go ahead. Hello, thank you. 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 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. 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.

Thanks, Rene. 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 deck 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 a historical achievement for us since our IPO in 2018. Secondly, developer subscription revenue record of 14% growth quarter-over-quarter and 19% growth year-over-year. Furtherly, our gross profit record group growth, both year-over-year and quarter-over-quarter. Firstly, 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 growth 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-add services and Vertical Applications, record quarter-on-quarter revenue growth, this repeated also record 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 19% 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 RMB48.1 million growth joining by 19% 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 card purchase. 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 59% 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, Zhangjiakou Income and [Indiscernible], just to name a few. Value-added services revenue were RMB8.3 million increased by 245% quarter-over-quarter and decreased by 28% year-over-year. The sequential increase was due to the New Yabar 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 explain 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 75% growth, reaching 390. We truly believe our EngageLab is a superior product where our reliability and high delivery rate 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 group by another RMB4.5 million quarter-on-quarter. Cumulatively, the total contract value signed up to June 30, 2024 amounts to more than RMB41 million. This growth momentum has exceeded our expectations, and we plan to seize this growth opportunity with our forecast. Further, 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 Southern East Asian 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 Expo in Singapore in-person, in late May -- or late May. Since then, we have received many invitations to other similar Tech Expos in Southern East Asia. From what I know, we have been invited to attend the tech events as per as, 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 prospect customers during these experts where we can demonstrate our products and answer any questions on the Expos. With a great sales lease conversations from the Singapore Tech Expo in May, therefore, we will continue to be present at these Expos in Southern East 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.

Thanks, Chris. Next, I'll go over the revenue for a 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 need 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 bankers like us, financial sector customers will secure and always allow multiple sources of quality data stream to strengthen their risk model, plus, these are not exclusive relationship, therefore, we can grow this business even with the core assistance of peers in this industry. The quarterly revenue recorded growth for -- this is the sixth consecutive quarter since Q1 of 2023. The customers that we sign up or renew in Q2 include Ping An Xiao Jing, [Indiscernible] and many more licensed, credit or financial institution 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 signed up a few new and renewed contracts from some of the well-known large customers such as Ita and many top-tier global H1 and investment funds, such as Point72, Broad Peak and SRS Investment. Next, I'll go through some of our key expenses and balance sheet items. On to operating expenses, the Q2 operating expenses was at RMB54.8 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 we are meeting or exceeding the revenue targets that we have set for them. Plus, we will welcome expenses growth in specific areas, 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 RMB23.7 million mainly due to the lower head count 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 RMB20.5 million, mainly due to the increase in sales commission in line with higher revenue. G&A expenses decreased by 23% year-over-year to RMB10.7 million, mainly due to the lower share-based compensation expenses and professional fees incurred. For the quarter ended June 30, 2024, was another history-making quarter for us. With great revenue growth and tight OpEx spending will be recorded yet another positive adjusted EBITDA. With this, we now have four straight consecutive quarters of positive adjusted EBITDA. And 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. On to 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 with a four-day reduction compared to Q1 of 2024. We are very pleased with this lower AR turnover, these number 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 KPIs for tracking the performance of SaaS company is the total deferred revenue which represents cash collected in advance from customer for future contract performance, which remained high at RMB135.1 million. And this is the 10 consecutive quarters where our deferred revenue has exceeded RMB130 million. Next, total assets were RMB335.1 million. This includes cash and cash equivalent of RMB92.7 million. Accounts receivable of RMB43.1 million. Prepayments and other current assets of RMB 20.8 million, fixed assets of RMB1.1 million, long-term investment of RMB113.2 million, goodwill of RMB37.8 million and intangible assets of RMB15.8 million resulting from the SendCloud acquisition in March ‘22. And total current liabilities were RMB228.2 million. This includes accounts payable of RMB26.6 million, current operating liabilities of RMB2.8 million, deferred revenue of RMB135.1 million, accrued liabilities of RMB60.7 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 deferred -- 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 RMB4.5 million between the quarters to more than RMB31 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. This concludes our prepared remarks. I will be happy to take your questions now. Operator, please proceed.

Thank you. [Operator Instructions] We will take our first question. Your first question comes from the line of Kevin Wong from [Indiscernible] Capital. Please go ahead. Your line is open.

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

Okay. Thanks, Kevin. Let me take questions. Yes, we believe 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 in record, and if I may, the NIM of -- in the game of tennis, this will consider to be grand slam for making four in a row. But of course, the actual work was done as 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 feet level. There are two goods -- this good 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 lines, 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. And I mentioned that the financial risk management also had a great quarter. And this is that we recorded a consecutive growth for the past five quarters and this was mainly due to the steady trend of more financials sector customers 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% 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 should 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 meaningfully to spend every single dollar to ensure operationally efficient. And for the same 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-quarter, again over again, that our execution capability and how we can stick closely to our strategy and deliver financial results. Therefore, short of giving our promises, what I would say is, we'll continue to follow our proven strategy to grow our business overseas and domestically. And I hope this answers your question, Kevin?

Very clear. Thanks.

Thank you. We will take our next question. Your next question comes from the line of Jack Sung from [Indiscernible] Research. Please go ahead. Your line is open.

Congratulations on a strong quarter. I'm Jack Sung from [Indiscernible] Research. I have question on EngageLab. EngageLab recorded a strong quarter in terms of customer number and country value. What would be the outlook for Engage lab in next few quarters? Thanks.

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're 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 are 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 a certain brand of Chinese mobile devices that our U.S. competitors are not able to. Three, we have multiple channel engagement solution that effectively cover all user engagement scenarios such AppPush and WebPush. We have SMS, we have e-mails, 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 for us to expand and grow every quarter. Based on our research, the overseas market demand, which is also you can call it TAM, Total Addressable Market for EngageLab, our notification business is huge. And we intend to wrap this good portion of the market in the Southeast Asia. As to 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, we are first getting more additional head count in sales person in Singapore and Malaysia, we can reach out to more customers over -- therefore, I'm very confident that our sales team in the overseas market, we sign up more customers in the near future. And Jack, I hope this answers your question.

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

Thanks.

Thank you. [Operator Instructions] There seems to be no further questions at this time. I will now hand the call back to Rene Vanguestaine for closing remarks.

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.

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