Aurora Mobile Q1 2024 Earnings Call Transcript

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June 6, 2024

Key Takeaways

  • Aurora Mobile achieved its third consecutive quarter of positive adjusted EBITDA, reflecting tight OpEx control and operational efficiency.
  • Developer subscription revenue rose 13% year-over-year but was offset by a 70% drop in value-added services, resulting in a net 2% decline in overall developer service revenue.
  • The company's gross margin expanded both year-over-year and quarter-over-quarter to its highest level since Q4 2021.
  • Operating expenses fell 18% year-over-year to their lowest quarterly level since the IPO, driven by headcount reductions and streamlined product offerings.
  • Overseas push/email product EngageLab grew customer count by over 30% quarter-over-quarter and saw cumulative contract value surge 60% to CNY241 million.
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Earnings Conference Call
Aurora Mobile Q1 2024
00:00 / 00:00

Transcript Sections

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Aurora Mobile's First Quarter 2024 earnings ocnference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, René Vanguestaine. Thank you. Please go ahead, sir.

René Vanguestaine
Owner at Christensen China Ltd

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.jiguang.cn. On the call today are Mr. Shannon Bong, Chief Financial Officer, and Mr. Guangyang 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.

René Vanguestaine
Owner at Christensen China Ltd

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 will turn the conference over to Mr. Bong. Please go ahead.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Hey, thanks, René. Greetings to all. Welcome to Aurora Mobile's 2024 first quarter earnings call. For our callers and listeners today, I'd like to know that our CEO, Chris, is on business trip, thus he's not able to attend the call today. Today, in Chris' absence, I shall have the privilege to share with you all on the great quarter we have. 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.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

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 far as managing the business went, I think we have done a great job. In this quarter, we have recorded the third consecutive quarter of positive Adjusted EBITDA. 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 few years. Our OpEx in this quarter is at historic low since our IPO.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Last but not least, our star overseas product, EngageLab, recorded excellent customer number and contract value growth this quarter again. 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 RMB 65 million. In particular, developer service revenue recorded a 2% year-over-year slide, and vertical application revenue decreased by 1% year-over-year. 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.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

As for some business, revenue were at RMB 42.4 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. 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 10 times year-over-year, and I shall elaborate more on EngageLab business later.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Within subscription bus-, subscription revenue, some of the notable new and renewal customers in this quarter include, but not limited to, Volkswagen China, SF Express, Huawei, Cotti Coffee, and miHoYo, just to name a few. Value-added service revenue was at $2.4 million, decreased 70% year-over-year, and decreased 64% quarter-over-quarter, which was due to lack of the major online shopping event in Q1. This low revenue in Q1 is within our expectation. However, we do foresee this business to bounce back in Q2, in anticipation of the 618 online shopping event. Next, let me share with you on the great numbers we have recorded by our EngageLab business in first quarter of 2024. Firstly, by March 31st, 2024, our EngageLab customer number has grown again from 170 to more than 220.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

We continue to make great progress in new customer acquisition in the overseas market. More and more new customer have 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 CNY 24 million by Q1 of 2024, representing a CNY 9 million growth quarter-over-quarter. Our EngageLab overseas customer bought both our public and private cloud version of our push service. And thirdly, our EngageLab product are sold to customers in more than 20 countries around the world. It has proven that our EngageLab products are truly global and catering to businesses and enterprise around without borders.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

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 a 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. We did see pickup in demands for our financial risk management products year-over-year, as lending activities in China has been on the rise.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Looking back, the quarterly revenue has been growing consecutively in each quarter since Q1 of 2023 to the current quarter. The Q1 customers that we have signed up or renew include, but not limited to, Kunlun Yinhang, Suzhou Yinhang, Mayi 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 ByteDance, Huya, Qingbaobao, and many top-tier global hedge fund and investment funds. Next, I'll go over some of the key expenses and balance sheet item. On to operating expenses.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

The Q1 operating expenses was at CNY 53 million, representing an 18% decrease year-over-year and 13% decrease quarter-over-quarter. And this CNY 53 million 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. And next, I'll go to the individual OpEx category. In particular, R&D expenses decreased by 28% year-over-year to CNY 22.7 million, mainly due to the lower headcount that reduced salary costs and associated share-based compensation, and a decrease in service activation expenses due to the growing cloud initiative we have undertaken.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Selling and marketing expenses decreased by 8% year-over-year to CNY 17.4 million, mainly due to the decrease in salary costs resulted from the headcount reduction as we made appropriate adjustment to operate at the optimal level. G&A expenses decreased by 9% year-over-year to CNY 12.9 million, mainly due to the lower headcount that reduced salary costs and associated share-based compensation. For the quarter ended March 31st, 2024, we recorded yet another positive adjusted EBITDA, and this is an historical event where we have 3 consecutive quarter 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.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

On to the balance sheet, I again will share two very important KPIs that we closely monitor. We continue to monitor to maintain a healthy AR turnover days level at 47 days, and this is still a low number and is peer leading in this market space. We are working hard to ensure that we actively collect cash from customers 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 the performance of SaaS companies is the total deferred revenue, which represents cash collected in advance from customers for future contract performance, which continues to be at a high balance of CNY 135.2 million. And this is the 9 consecutive quarters that we have deferred revenue balance above 130 million.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Next, total assets were at RMB 334 million as of March 31st, 2024, which includes cash and cash equivalents of RMB 99 million, accounts receivable of RMB 33 million, prepayments and other current assets at RMB 23 million, fixed assets at RMB 1.4 million, long-term investment of RMB 113 million, goodwill at RMB 37.8 million, intangible assets at RMB 16.9 million, resulted from the SendCloud acquisition in March 2022. Total liabilities were at RMB 227 million as of March 31st, 2024. This includes accounts payable of RMB 22 million, current operating liabilities of RMB 3 million, deferred revenue of RMB 125 million, and accrued liabilities of RMB 64 million. At this juncture, let me recap on the great start to 2024 description that I have mentioned at the start of this call.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

In this quarter, our developer service revenue grew by 13% year-over-year. Number two, our gross margin at the highest level since Q4 of 2021. Three, for the first time in history, we have 3 consecutive quarters of positive adjusted EBITDA. Four, quarterly OpEx at $53 million, which is at the lowest level since IPO. Five, our EngageLab product recorded customer number growth of more than 30% quarter-over-quarter, and cumulative contract value grew more than 60% between the quarters. 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 two years ago during the pandemic.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Let me spend a few minutes here to recap on the work we have done to get to where we are now. One, we have refocused our strategy, and 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. 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 two, we have restructured our teams and seriously look at the headcount.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

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. Apart from the headcount, we have also reviewed all the service contract with external vendors. During the process, we have also managed to lower fixed operating expenses year-over-year to an optimal level. Number four, more importantly, we have chosen the right direction by going overseas through our EngageLab suite of product. With this combination of right steps that we have taken, we are now seeing the positive impact. Most notably is the three consecutive positive Adjusted EBITDA that we have managed to deliver. As we continue to scale our business, I believe more good results will come.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

And I would like to thank the shareholders, investors and the Aurora Group employees for their support and patience throughout these past few years. Lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended March 31st, 2024, we have repurchased 17,000 ADS. Cumulatively, we have repurchased a total of 205,000 ADS 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. Operator, please proceed.

Operator

Thank you. We will now begin the question-and-answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster.... Our first question comes from the line of Calvin Wong from Spica Capital. Please ask your question, Calvin.

Calvin Wong
Equity Research Analyst at Spica Capital

Thank you for taking my questions, and congratulations again for another quarter of great results. I would like to have two, 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? That's my first question. Second question is, I would like to circle back on the EngageLab business again. Based on the Q1 ER that you have uploaded and the earlier management call, EngageLab had another great growth quarter. I would appreciate if management could shed more light on this business segment. So again, two questions, one on the Adjusted EBITDA outlook, and two, about the outlook of the EngageLab business.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Hmm. Sure, Calvin. Let me recap. One is the question on the adjusted EBITDA number, and second is the EngageLab. Yeah, I, I think, if, honestly, we are truly happy that we, 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, slow quarter because of the Chinese New Year, along with the February shorter month. 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 two years.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

I believe right now, we are in a very good position with the right product and with Dusha, with great potential, and especially our overseas expansion being executed according to what we have set out to do and with a low level of operating expenses. I guess, let me just recap what we have done. With the things that we have done, we have recorded the subscription revenue grew, that grew 13%, and our EngageLab business has grown. The revenue has grown 10 times year-over-year, and we recorded the highest gross margin that grew year-over-year and quarter-over-quarter, and our operating expenses were record low since IPO. Most importantly, a lot of investors and shareholders are looking for this three consecutive quarter of positive adjusted EBITDA.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

I guess one may conclude that things are falling into the right places where they belong. As well, question on whether we are expecting another quarter of positive Adjusted EBITDA number. I think we shall not get ahead of ourselves. 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. On the EngageLab, if I may use one word to describe EngageLab, it would be growth.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Probably you have seen, since we just started sharing the quarterly EngageLab 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. Also, I can give you an insight in terms of what we have seen recently. Just last week, we had a booth in Singapore for the Asia Tech Expo, and both Chris and myself attended the event in person. So we went there in Singapore, and during the course of 3 days, and we received more than, I would say, more than 100 leads, more than 100 sales leads.

Shan-Nen Bong
Shan-Nen Bong
CFO at Aurora Mobile

Chris and myself spoke to many potential customers, be it from Singapore, from Malaysia, my hometown, in Indonesia, Philippines, even from as far as Romania. Personally, I think I'm truly impressed with the interest we have received from our, from customers on our EngageLab product in Asia, during the visit. From, I guess from the technical standpoint, I think I just give a brief on what we have done. 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 all customers to send their notification to their customer, regardless of what phone they are using. That is the business update on the EngageLab. Hope this answer your question, Calvin.

Calvin Wong
Equity Research Analyst at Spica Capital

Very clear. Thanks.

Operator

Thank you, Calvin. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. Once again, that's star one one for questions. I'm showing no further questions. I'll now turn the conference back to René for our closing comments. René, you may wish to do the closing comments.

René Vanguestaine
Owner at Christensen China Ltd

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.

Operator

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

Executives
    • Shan-Nen Bong
      Shan-Nen Bong
      CFO
Analysts
    • Calvin Wong
      Equity Research Analyst at Spica Capital
    • René Vanguestaine
      Owner at Christensen China Ltd
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