Aurora Mobile Q1 2024 Earnings Call Transcript

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Provided by Quartr
June 6, 2024

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Aurora Mobile First Quarter 2024 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 Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Rene Reganston. Thank you.

Operator

Please go ahead, sir.

Speaker 1

Thank you, Amber. 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.jigwang.cn. On the call today are Mr. Shannon Bong, Chief Financial Officer and Mr.

Speaker 1

Guang Yang, Chef Chen, General Manager. Following their prepared remarks, they will be available to answer your questions during the Q and 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.

Speaker 1

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.

Speaker 1

With that, I will turn the conference over to Mr. Bong. Please go ahead.

Speaker 2

Thanks, Rene. Greetings to all. Welcome to Aurora's mobile 2024 First Quarter Earnings Call. And for our callers and listeners today, I would like to note that our CEO, Chris, is on business trip, plus he is not able to attend the call today. And today, in Chris' absence, I shall have the privilege to share with you all on the great quarter we have.

Speaker 2

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. Similar to the prior quarter on what Chris has done, based on the Q1 numbers, I shall give an appropriate description for the performance of this quarter, and it would be a great start to 2024 and the reasons are as follows. Firstly, as well as managing the business when I think we have done a great job. In this quarter, we have recorded the 3rd consecutive quarter of positive adjusted EBITDA.

Speaker 2

Secondly, developer subscription revenue recorded a 13% revenue growth year over year, showing great growth momentum over the years. Thirdly, our gross margin grew both year over year and quarter over quarter. Fourthly, we are continuing to operate at a low level of OpEx, leveraging on our operational efficiency improvement over the past year. Our OpEx in this quarter is at historic low since our IPO. Last but not least, our STA overseas product, EngageLab, recorded excellent customer number and contract value growth this quarter again.

Speaker 2

I believe all of you would agree that we have a great Q1 for 2024. We are truly looking forward to building up the momentum for the next few quarters with even more exciting numbers. Next, let me share with you more. For our total group revenue, it remained consistent at RMB65 1,000,000. In particular, developer service revenue recorded a 2% year over year slide and particular application revenue decreased by 1% year over year.

Speaker 2

Developer service revenue, which consisted of subscription service and value added service decreased by 2% year over year. And within developer service, subscription revenue increased 13% year over year, but was offset by 70% decrease in value added service. Next, I shall dive deeper into each business line. And for Sogou Business, revenue were at RMB42.4 million, up 13% year over year, but declined 13% quarter over quarter as Q4 is a usually high year end quarter for each year. The 13% year over year growth was mainly driven by a 12% increase in ARPU.

Speaker 2

For year over year comparison, the higher ARPU was mainly contributed by completion of more private cloud projects in 2024. Another key factor for this 13% revenue year over year growth was due to the revenue originated from EngageLab. The EngageLab recognized revenue has increased 10x year over year, and I shall elaborate more on EngageLab business later. And with this subscription revenue, some of the notable new and renewal customer in this quarter include, but not limited to, Volkswagen China, Sunfeng Express, Huawei, Coty Coffee and Mihayu, just to name a few. And value added service revenue were at $2,400,000 decreased 70% year over year and decreased 64% quarter over quarter, which was due to lack of the major online shopping event in Q1.

Speaker 2

And this low revenue in Q1 is within our expectation. However, we do foresee this business to bounce back in Q2 in anticipation of the 6 18 online shopping event. Next, let me share with you on the great numbers we have recorded by our eLab business in Q1 of 2024. Firstly, by March 31, 2024, our EngageLab customer number has grown again from 170 to more than 220. We continue to make great progress in new customer acquisition in the overseas market.

Speaker 2

More and more new customer has signed up with us as they are seeking the reliable push and email service provider who can help them to improve message delivery rate and user engagement. Secondly, the cumulative signed contract value of EngageLab has another 60% quarter over quarter growth, bringing the total cumulative contract value to more than CNY24 1,000,000 by Q1 of 2024, representing a RMB9 1,000,000 growth quarter over quarter. Our EnglishLab overseas customer bought both our public and private cloud version of our push service. And thirdly, our EnglishLab product has sold to customers in more than 20 countries around the world. It has proven that our EnglishLab products are truly global and catering to businesses and enter enterprises around Without Borders.

Speaker 2

Next, I shall go over the revenue for vertical application, where it is made up of financial risk management and market intelligence. Vertical application had a stable quarter where revenue remained relatively consistent year over year, but declined 9% quarter over quarter from the usual high Q4 quarter. For Financial Risk Management, we saw our revenue grew 14% year over year and 2% quarter over quarter. The 14% year over year revenue growth was positively impacted by a 41% customer number growth. And this is hot on the heels of a 26% year over year growth in Q4 of 2023.

Speaker 2

We did see pickup in demand for our financial risk management products year over year as lending activities in China has been on the rise. And looking back, the quarterly revenue has been growing consecutively in each quarter since Q1 of 2023 to the current quarter. And the Q1 customers that we have signed up or renewed include but not limited to Kunlun Minhang, Suzhou Minhang, Mai Jingrong and many licensed credit and financial institutions throughout China. As for Market Intelligence, the revenue decreased by 21% year over year and decreased 9% quarter over quarter due to the continued weak market demand for Chinese APP data. In Q1 of 2024, we signed up some of the well known and large customer such as by then, Huya, Qingbaobao and many top tier global hedge fund and investment funds.

Speaker 2

And next, I'll go over some of the key expenses and balance sheet item. On to operating expenses. The Q1 operating expenses was at $53,000,000 representing an 18% decrease year over year and 13% decrease quarter over quarter. And this $53,000,000 OpEx was the lowest quarterly OpEx we have recorded since IPO in July 2018. As shown on the financial statement, we are and have been making all the necessary steps and initiatives to maintain optimal level of operating expenses, And we are very pleased with the current OpEx level.

Speaker 2

And next, I'll go to the individual OpEx category. In particular, R and D expenses decreased by 28% year over year to RMB22,700,000 mainly due to the lower headcount that reduced salary costs and associated share based compensation and a decrease in services and education expenses due to the growing cloud initiative we have undertaken. Our selling and marketing expenses decreased by 8% year over year to $17,400,000 mainly due to the decrease in salary costs resulted from the headcount reduction as we made appropriate adjustment to operate at the optimal level. And G and A expenses decreased by 9% year over year to RMB12.9 million, mainly due to the lower headcount that reduced salary costs and associated share based compensation. And for the quarter ended March 31, 2024, we recorded yet another positive adjusted EBITDA.

Speaker 2

And this is an historical event where we have 3 consecutive quarters of positive adjusted EBITDA. As mentioned above, we have tightly managed and controlled our OpEx over the years. We believe so long as we continue to grow our top line in the future, you will see more good quarterly results sooner rather than later. Onto the balance sheet. I again will share 2 very important KPIs that we closely monitor.

Speaker 2

We continue to monitor to maintain a healthy AR turnover days level at 47 days. And this is still a low numbers and is peer leading in this market space. We are working hard to ensure that we actively collect cash from customer and ensure we have low turnover days, at the same time, mitigating the risk of bad and doubtful debts. Secondly, one of the key financial KPIs for tracking and the performance of SaaS Company is the total deferred revenue, which represents cash collected in advance from customers for future contract performance, which continue to be a high balance of $135,200,000 And this is the 9 consecutive quarters that we have deferred revenue balance above $130,000,000 Next, total assets were RMB334 1,000,000 as of March 31, 2024, which includes cash and cash equivalent of $99,000,000 accounts receivable of $33,000,000 prepayments and other current assets at $23,000,000 fixed asset at $1,400,000 long term investment of $113,000,000 goodwill at $37,800,000 intangible assets at $16,900,000 resulted from the Sand Cloud acquisition in March 2022. And total liabilities were at $227,000,000 as of March 31, 2024.

Speaker 2

This include accounts payable of RMB 22,000,000 current operating activity of RMB 3,000,000 deferred revenue of RMB 135,000,000 and accrued liabilities of $64,000,000 At this juncture, let me recap on the great start to 2024 description that I have mentioned at the start of this call. In this quarter, our developer service revenue grew by 13% year over year. Number 2, our gross margin at the highest level since Q4 of 2021. 3, for the first time in Q3, we have 3 consecutive quarters of positive adjusted EBITDA. 4, quarterly OpEx at $54,000,000 $53,000,000 which is at the lowest level since IPO 5, our EnglishLab product recorded customers growth customer number growth of more than 30% quarter over quarter and cumulative contract value grew more than 60% between the quarters.

Speaker 2

And with the above, I believe the management team has done a great job delivering yet another quarter of good financial results. And this set of numbers do not come easy, and we have done a lot of work since 2 years ago during the pandemic. And let me spend a few minutes here to recap on the work we have done to get to where we are now. 1, we have refocused our strategy during which we gather all the heads of products. We challenge them on the needs to maintain and sell each product in the view of market potential.

Speaker 2

The end result was we streamlined the number of product offerings. We cut down the products that are not bringing positive contributions to the books and putting all our resources to a handful of key products, which are profitable, in high demand domestically and overseas and with great potential. Number 2, we have restructured our teams and seriously look at the headcount. With fewer products to be maintained and to improve operational efficiency, our headcount has decreased close to 40% from the peak, thereby helping us to cut down the fixed cost component of our OpEx. And apart from the headcount, we have also reviewed all the service contract with external vendors.

Speaker 2

And during the process, we have also managed to lower fixed operating expenses year to year to an optimal level. Number 4, more importantly, we have chosen the right direction by going overseas through our EngageLab suite of product. And with this combination of right steps that we have taken, we are now seeing the positive impact. Most notably is the 3 consecutive positive adjusted EBITDA that we have managed to deliver. As we continue to scale our business, I believe more good results will come.

Speaker 2

And I would like to thank the shareholders in Zest and the Aurora Group employees for their support and patience throughout these past few years. And lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended March 31, 2024, we have repurchased 17,000 ADS. Cumulatively, we have repurchased a total of 205,000 ADS during the start of our since the start of our repurchase program. And with this, it concludes the management prepared remarks, and we will be happy to take your calls now.

Speaker 2

Operator, please proceed.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Kelvin Wong from Speakers Capital. Please ask your question, Kelvin.

Speaker 3

Thank you for taking my questions and congratulations again for another quarters of great results. I would like to have 2, if I may. Firstly, as we understand, Q1 is a relatively quiet quarter, but you still managed to deliver another quarter of positive adjusted EBITDA. So I'd like to hear from the management how this was possible. And are we now expecting another positive adjusted EBITDA in Q2?

Speaker 3

That's my first question. And second question is, I would like to circle back on the EngageLab business again. Based on the Q1 year that you have upload and the earlier management call, EngageLab had another great growth quarter. I would appreciate if management could shed more lights on this business segment. So again, two questions.

Speaker 3

1 on the adjusted EBITDA outlook and 2, about the outlook of the EngageLab business.

Speaker 2

Sure. Kelvin, let me recap. One is the question on the adjusted EBITDA number and second is the EngageLab. Yes, I think honestly, we are truly happy that we have done a great job to deliver another quarter of adjusted EBITDA positive numbers in Q1. As you rightly mentioned, the Q1 is typically a slow quarter because of the Chinese New Year along with the February shorter month.

Speaker 2

Of course, this Q1 positive adjusted EBITDA number did not come easy. As I just mentioned earlier, we have made a lot of adjustment. We made tweaks, large or small, try to be nimble, try to be agile, try to be fast enough to react to the market over the past 2 years. And I believe right now, we are in a very good position with the right product and with Dushyant with great potential and especially our overseas expansion being executed according to what we have set out to do and with the low level of operating expenses. And I guess, let me just recap what we have done.

Speaker 2

With the things that we have done, we have recorded the subscription revenue grew that grew 13% and our English App business has grown the revenue has grown 10 times year over year, and we recorded the highest gross margin that grew year quarter over quarter. And our operating expenses were record low since IPO. And most importantly, a lot of investors and shareholders are looking for this 3 consecutive quarter of positive adjusted EBITDA. I guess, one may conclude that things are falling into the right places where they belong. And as well question on whether we are expecting another quarter of positive adjusted EBITDA number, I think we shall not get ahead of ourselves.

Speaker 2

I think what we need to do is the management team will continue to focus on what we have done right, namely to scale our business domestically and overseas. And at the same time, we just need to closely monitor our operating expense. And if we do this right, I think the results will reflect itself. So this is my response to your first question. And on the EngageLab, if I may use one word to describe EngageLab, it will be growth.

Speaker 2

Probably you have seen since we just started sharing the quarterly EnglishLab business numbers in Q3 of 2023, the number has been growing ever since every single quarter we recorded good numbers growth. And customer number has grown impressively and the cumulative contract value has grown significantly every quarter. Therefore, I would say we are very pleased with how the business has tracked so far. And also I can give you insight in terms of what we have seen recently. Just last week, we had approved it in Singapore for the Asia Tech Expo.

Speaker 2

And both Chris and myself attended the event in person. So we went there in Singapore. And during the 3 day course during the course of 3 days, and we received more than, I would say, more than 100 leads more than 100 sales leads. And Chris and myself spoke to many potential customer, be it from Singapore, from Malaysia, my hometown, in Indonesia, Philippines, even from as far as Romania. So personally, I think I'm truly impressed with the interest we have received from our from customers on our EnglishLab product in Asia during the visit.

Speaker 2

And from I guess from the technical standpoint, I think I just give us a brief on what we have done. And what we have done is we have incorporated our notification channel for all different phone operating system. Whether you use iOS or you use Android or others, we are making this very easy for our customers to send their notification to their customer regardless of what phone they are using. So that is the business update on the English Lab. Hope this answer your question, Kelvin.

Speaker 3

Very clear. Thanks.

Operator

Thank you, Kelvin. I'm showing no further questions. I'll now turn the conference back to Renee for closing comments. Rene, you may wish to do the closing commands.

Speaker 1

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. Have a good night. Thank you all.

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Aurora Mobile Q1 2024
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