Q2 2023 Aurora Mobile Ltd Earnings Call
Participants
Shan-Nen Bong; CFO; Aurora Mobile Limited
Weidong Luo; Co-Founder, Chairman & CEO; Aurora Mobile Limited
Brian David Kinstlinger; MD, Director of Research, Head of TMT Research & Senior Technology Analyst; Alliance Global Partners, Research Division
Unidentified Analyst
Rene Vanguestaine; Chairman & CEO; Christensen & Associates
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile Second Quarter 2023 Earnings Conference Call. At this time, all participants are a listen-only mode. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host for today, Rene Vanguestaine. Thank you. Please go ahead, sir.
Rene Vanguestaine
Thank you, Michelle. Hello, everyone, and thank you for joining us today. Aurora's earnings release was distributed earlier today and is available on the IR website at https://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'd now like to turn the conference call over to Mr. Luo. Please go ahead.
Weidong Luo
Thanks, Rene. Good morning, and good evening, everyone. Welcome to Aurora Mobile's 2023 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. Coming off from our seasonal slow Q1 quarter, we managed to achieve a few good results sequentially in this quarter. Overall, we did see signs of recovery on most of the business lines within the quarter. However, they are not back to the level a year ago. During Q2 of 2023, we did a few things right.
Firstly, we continued to expand our Subscription business with the help of our engagement products operating overseas. I will share more on our engagement business at a later part. Secondly, our value-add distributed business recorded impressive sequential revenue growth. Further, our vertical application business recorded solid growth. Last but not least, we continue to control our expenses throughout the organization.
With this as the backdrop, here are the good financial results that I would like to share with you. Total revenue grew 12% quarter-over-quarter. Gross profit grew quarter-over-quarter to RMB 47.7 million. Lowest adjusted operating expenses since IPO at RMB 54.6 million. Lowest operating expenses since IPO at RMB 54.1 million. AR turnover days at 37 days improvement year-over-year and quarter-over-quarter. Deferred revenue balance above RMB 130 million for the past 6 consecutive quarters.
Now, let me go through our different revenue streams. Developer Services revenue decreased 6% year-over-year, mainly due to the weakness in the value-added services, offset by the 6% growth in subscription services. However, Developer Services revenue grew solid by 15% quarter-over-quarter where both Subscriptions and Value-added-services have recorded sequential revenue growth.
Subscription Services revenue were RMB 40.5 million, up 6% year-over-year, mainly driven by increasing ARPU. Similarly, with record revenue growth of 8% quarter-over-quarter with the growth in ARPU between the quarters. Some of the notable new and renewal customers in this quarter include but not limited to (inaudible).
Value-added-services revenues were RMB 11.5 million, decreased by 32% year-over-year which was a result of weak advertising demand. However, we did manage to record a good sequential revenue growth of 45% quarter-over-quarter. This was mainly due to our ability to capture a good portion of the eCommerce advertising spending for the 6/18 online shopping festival. However, we remain cautious on the revenue growth in the online advertisement market.
Next, let me give you some updates on our overseas EngageLab product. As I shared in the pre-quarter earnings release, we now have the data center across the global catering for customers in different regions and continents. As we expand our footprint globally, we have signed up more international customers. Our investment in technology innovation and building global infrastructure have paid off.
As of now, we have global customers coming from 12 different countries and regions, including Hong Kong and Taiwan. Per our discussion with these overseas customers, they selected our service mainly due to the following reasons: one, reliable and stable service delivery to strengthen data security and compliance, free local data centers across the world. Let me share some other impressive metrics here in Q2. Our EngageLab business segment signed contract value was at 21% of the total new contract value for the group. This number has grown 3x between the quarters showing great momentum.
In addition, we have also seen great overseas e-mail and SMS volume growth. In Q2, the total overseas e-mail request volume was at 3.3 billion, representing 4.2x of our domestic e-mail request volume. Overseas e-mail and SMS request volumes have recorded 19% and 90% growth between the quarters. Our EngageLab business activity is gradually growing in importance for both transaction and contract value contributions. Therefore, I'm very confident on the progress of our overseas business expansion strategy that we have started a year ago. I believe we will -- we have the benefit of this overseas effort in the near future.
With that, I will now pass the call over to Shan-Nen, who will share more information on the vertical application and other aspects of our financial performance for this quarter.
Shan-Nen Bong
Thanks, Chris. Just to recap, Vertical Applications mainly consists of financial risk management and market intelligence. In this quarter, Vertical Applications recorded revenues growth on both year-over-year and quarter-over-quarter basis. For Financial Risk Management, revenue grew year-over-year and quarter-over-quarter. This was positively impacted due to ARPU growth between the periods.
In Q2 of 2023, we have seen customer consumption or purchase of our services increased, thus pushing the ARPU quarter-over-quarter. Apart from customers increased their consumption, we managed to sign up more customers such as (inaudible). As for Market Intelligence, the revenue remained stable year-over-year and quarter-over-quarter.
I'll now go through some of our key expenses and balance sheet items. Onto operating expenses. I'm again very pleased to share with you that in Q2 2023, we have yet another record low quarterly OpEx at RMB 64.1 million. For year-over-year comparison, OpEx decreased by 27%, where all 3 categories of OpEx being research and R&D, S&M and G&A, all recorded reduction between the periods. This is critically important for us to maintain our OpEx at optimal level. This is the reason why we are able to record a 42% year-over-year improvement in adjusted EBITDA when the revenue dropped by 4% year-over-year. We strive to continue to tightly monitor and control our OpEx now and going forward.
I will now go through the individual OpEx category. In particular, R&D expenses decreased by 26% year-over-year to RMB 30.2 million, mainly due to lower headcount that reduced salary costs and associated share-based compensation and a decrease in depreciation expenses as a result of, first, no longer needing as many servers due to our ongoing cloud initiatives. Selling and marketing expenses decreased by 14% year-over-year to RMB 20 million, mainly due to the decrease of headcount by [30]. G&A expenses decreased by 41% year-over-year to RMB 13.9 million, mainly due to a RMB 2.5 million decrease in personnel costs and RMB 5.3 million decrease in professional fees.
As I mentioned earlier, as a result of our focus to drive OpEx at optimal level, the adjusted EBITDA improved significantly by 42% year-over-year to negative RMB 4.6 million.
On to the balance sheet. I will again share 2 very important KPIs that we closely monitor. We continue to maintain a healthy AR turnover days at 37 days. This was a huge improvement from a year ago where the AR turnover days was at 46 days. And we also shortened the AR turnover days quarter-over-quarter. In summary, our team has done a great job in this quarter to improve our cash collection and mitigating the AR doubtful debt risk.
Secondly, one of the key financial KPI for tracking the performance of SaaS company is the total deferred revenue, which represents cash collected in advance from customers for future contract performance. The balance continues to be at a high level of RMB 137.3 million. And this is the sixth consecutive quarter where our deferred revenue balance exceeded RMB 130 million. We continue to sign up new and renewal customers where they prepaid their fees in advance. This again, greatly improved our cash flow quarter-over-quarter.
Next, total assets were RMB 371.9 million as of June 30, 2023. This includes cash and cash equivalents of RMB 81.1 million, accounts receivable of RMB 34 million, prepayments and other current assets at RMB 31.1 million, fixed assets at RMB 10.1 million, long-term investment of RMB 140.4 million, goodwill of RMB 37.8 million and intangible assets of RMB 20.9 million resulted from the SendCloud acquisition in March 2022.
Total current liabilities were at RMB 235.8 million as of June 30, 2023. This includes short-term loan of RMB 5 million, accounts payable of RMB 22.2 million, current operating lease liability of RMB 7.3 million, deferred revenue of RMB 135.4 million, accrued liabilities of RMB 65.8 million.
And lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended June 30, 2023, we repurchased 443,000 ADSs. Cumulatively, we have repurchased a total of 1.83 million ADS since the start of our repurchase program. And this concludes management's prepared remarks. We're happy to take your call now.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from (inaudible).
Unidentified Analyst
I would like to have 2 questions, if I may. The first question is related to your financials. Actually, it is great to see that your financials are recording continuous improvement every quarter. Like last quarter, we saw a sequential increase in revenue, sequential decrease in OpEx and sequential narrowing in negative adjusted EBITDA. So the question is very simple, what is the management expectation on turning into positive adjusted EBITDA? Is this something we will see like next quarter or in Q4 of this year?
And the second question is related to your EngageLab product. We actually see that you EngageLab products was making good progress overseas. So can management share more about the progress and how management is looking at this business and its growth path? So the first question is related to adjusted EBITDA. The second one is related to EngageLab product.
Shan-Nen Bong
Sure, [Kevin], this is Shan-Nen. Let me take your call. Yes, you're right. Your observation is spot on. Yes, the financial KPIs, be it revenue growth, OpEx number or adjusted EBITDA are all improving sequentially. So as a company, we are very pleased with the effort made by the team throughout the organization over the few quarters. I guess our work is not done. We still need to make good progress on the revenue expansion. I think we need to moving customers -- moving into more customers or getting more customers in and outside of China and increasing the ARPU across the board.
And secondly, I think we certainly cannot take our eyes of monitoring our expenses. But the market conditions are relatively volatile, as you know. So I believe we are in a great position through the hard work that we have put in for the past 6 or 8 quarters in the past year or 2. And the question you asked based on our current trajectory, we are cautiously optimistic that should everything goes according to our plan, we should be able to record positive adjusted EBITDA in Q4 of this year. But I guess, I still have to put a disclaimer, this is our best current estimate and is subject to market conditions.
Nevertheless, I think should -- but there is still a possibility that we could turn adjusted EBITDA positive in Q3 should everything go according to plan or earlier than what we expected. So we'll see how we trend in Q3.
And the second question you asked about the EngageLab. Yes, I think you have heard what Chris said. We are very pleased with the progress with our EngageLab product. I guess a few things that we have done well. I think one is the fact that we have invested additional data center infrastructure around the world. This gives our overseas customers a great option to choose how and where they want to store their data that better suits their security and compliance needs. And of course, ensuring our service delivery is utmost important, we need to make sure that our services meet or even exceed customer expectations. We need to address all our customers concerns on a timely basis.
Therefore, whether the customer is based in Singapore or Australia or in China, we have to provide a consistent high-level quality -- high-quality services to all our customers around the globe. And also, I will give you an update on the latest. I guess, from -- based on the deck you have seen, our customers are coming from 12 countries and regions around the world. I was told earlier this week that we are now starting to process additional service in Mexico and Turkey.
So I guess, you can see our services are moving into new territories quarter-over-quarters. And therefore, we believe we have done many things right, for us to be able to venture outside of China, and we should continue to grow our overseas customer base every quarter. So this is my answer to your question, Kevin .
Unidentified Analyst
Thank you for your comments on the positive adjusted EBITDA. It's very clear.
Operator
Our next question comes from Brian Kinstlinger with Alliance Global Partners.
Brian David Kinstlinger
Great. The early success you're having overseas sounds great. I'm wondering if you can quantify the revenue impact during the second quarter and maybe put some context into how you expect this to ramp overseas in terms of revenue?
Shan-Nen Bong
Brian, this is Shan-Nen. Right now, the contribution is not material as yet. But probably, as you know, based on our business model, one contract that we signed, the revenues really contribute on a monthly basis for the next 12 months. So -- but I guess the good thing that we have seen is like what Chris has said. Based on the new contract that we have signed in Q2, 20% of them is coming from overseas, and this has increased 3x from Q1. So you can see the trending of this so-called contract value contribution from overseas. So this is something that we are tracking. Maybe in the next quarter or 2, when the revenue contribution is material enough, we'll make a disclosure.
Brian David Kinstlinger
Got it. And what is that. Can you share that contract value with us?
Shan-Nen Bong
Not the value. Yes, we are not in a position to disclose the value of the contract yet.
Brian David Kinstlinger
Great. And then on subscriptions, you saw higher ARPU. Is that pricing or more services for customers? And then do you see more opportunity for ARPU growth in the second half of the year? And if so, what drives that?
Shan-Nen Bong
Yes. If any ARPU growth, that will come from overseas. And I think we have discussed before. I shared with you or other investors or analysts, the ARPU that we get from overseas is at least double of that of China. So with the contribution from overseas getting bigger, our ARPU certainly will have to go up.
Brian David Kinstlinger
But if overseas was the material in the second quarter, what was the factor that drove higher ARPU in the second quarter?
Shan-Nen Bong
Yes, it's not material as yet, but it does help us on the ARPU between the quarters, because Q1 is always the low quarter for the year. So back to your question. Overall, we did see some pickup on the ARPU. But what I'm trying to say is the major contribution is coming from overseas, the ARPU growth.
Brian David Kinstlinger
And then how much of the sequential revenue growth in value-added services was a result of capturing the ad spend on June 18 Shopping Festival. And then are there any other such festivals that we should think about in the second half of the year?
Shan-Nen Bong
Sure. I would say majority of the value-added services revenue growth is from the 6/18 Festival. So if you look at going forward, in China, I think there are 2 big -- so-called big online e-commerce festivals, one is the 6/18 and the one is 11/11 in Q4. So having said that, which means that Q3 will likely to be a slower season compared to Q2 and Q4.
Brian David Kinstlinger
Got it. Great. And lastly, while you guys have done a great job in managing expenses, the gross margin was at a multiyear low during the second quarter. What were the factors that drove that? And is that more of an anomaly? Or is it more of the new baseline for the company?
Shan-Nen Bong
No, it's not a baseline. If you look at what we have in -- based on our current Q3 estimate, the gross margin is going to come up, is going to be higher than 65%. This is answer to the other question. And the first question you asked, the reason was simply because of the fact that the SMS-related revenue contribution was higher in the quarter because the SMS business, revenue tend to have a lower margin compared to other SaaS business because we have a kind of a fixed cost that we need to pay to telcos for using the SMS that we sent.
Operator
(Operator Instructions)
There are no further questions at this time. I'd like to turn the call back over to Rene for any closing remarks.
Rene Vanguestaine
Thank you, Michelle. 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.
Operator
This does conclude the program. You may now disconnect.
