Aurora Mobile (NASDAQ:JG), in its third quarter earnings call of 2023, reported a positive adjusted EBITDA and a record low operating expense. The company saw consecutive revenue growth in its Developer Subscription and Vertical Application businesses. The EngageLab product also showed significant success, signing up over 100 overseas customers, with a cumulative contract value exceeding CNY 10 million.
Key takeaways from the call:
- Aurora Mobile reported strong financial results for Q3 2023, with both the Developer Subscription and Vertical Application businesses recording consecutive revenue growth.
- The company achieved a record low operating expense and turned adjusted EBITDA positive.
- The EngageLab product saw significant success with over 100 overseas customers from 16 different countries and regions.
- The company plans to continue expanding the EngageLab business by signing up more customers in existing countries and expanding to new countries and regions every quarter.
- As of September 30, 2023, the company had CNY 98.4 million in cash and cash equivalents, CNY 31.3 million in accounts receivable, and CNY 134.9 million in long-term investments, among other assets.
- Total current liabilities were CNY 233.2 million, including a short-term loan of CNY 5 million, accounts receivable of CNY 20.2 million, and deferred revenue of CNY 130.6 million.
- The company repurchased 854,000 ADS in the quarter, bringing the total repurchased since the start of the program to 2.69 million ADS.
- The company is focused on growing its high-margin revenue and controlling expenses.
- The EngageLab business, which operates overseas, has been successful due to investments in overseas infrastructure, partnerships with Chinese companies expanding overseas, and collaborations with quality ISVs in overseas markets.
The company's overseas venture, EngageLab, which started with zero customers and contract value in Q3 of 2022, has been performing well. The company has invested in overseas infrastructure and has been working closely with Chinese companies expanding overseas. They also engage with quality independent software vendors (ISV) in overseas markets. EngageLab represents a new growth engine for the company, less reliant on the Chinese mainland economic environment. The company concluded the call by inviting further questions and comments.
InvestingPro Insights
According to InvestingPro, Aurora Mobile's financial health is a mixed bag. On one hand, the company holds more cash than debt on its balance sheet, which is a positive sign of financial stability (InvestingPro Tip 0). Additionally, the company has impressive gross profit margins (InvestingPro Tip 2), which is reflected in the gross profit of 28.6M USD for the last twelve months as of Q2 2023 (InvestingPro Data).
However, analysts anticipate a sales decline in the current year (InvestingPro Tip 4), and the company operates with a poor return on assets (InvestingPro Tip 5), as shown by a -22.46% return on assets for the last twelve months as of Q2 2023 (InvestingPro Data).
In terms of trading, the company's stock is trading at a low Price / Book multiple (InvestingPro Tip 3) and a low revenue valuation multiple (InvestingPro Tip 9), which may make it an attractive investment for value investors.
For more detailed tips and real-time data, consider exploring InvestingPro's comprehensive resources. There are 20 additional tips available for Aurora Mobile on InvestingPro's platform, providing a wealth of information for potential investors.
Full transcript - JG Q3 2023:
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instruction will be given at that time. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Rene Vanguestaine. Thank you. Please go ahead, sir.
Rene Vanguestaine: Thank you, Michel. 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 ir.jiguang.cn. On the call today are Mr. Shan-Nen Bong, Chief Financial Officer; and Mr. Guangyan Chen, General Manager. [Operator Instructions]. 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 over to Mr. Bong. Please go ahead.
Shan-Nen Bong: Thanks, Rene. Good morning, and good evening, everyone. Welcome to Aurora Mobile's 2023 Third Quarter Earnings Release Call. And for all our callers and listeners today, I wanted to let you know that our CEO, Chris, is on business trip at different time zone, plus is not available to attend the call today. And we -- in Chris absence, I should have the privilege to share with you all on the great quarter that we have this quarter. And 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. I refer to this quarter to be a great quarter for a number of reasons. And here, I would like to categorically go through the great things that we have achieved this quarter. Firstly, 2 of our business lines recorded sequential revenue growth in each of the 3 quarters of 2023, where developer subscription revenue grew 15% quarter-over-quarter. Vertical Applications revenue grew 6% quarter-over-quarter driven by Financial Risk Management revenue, which grew 11% quarter-over-quarter. Secondly, our gross profit in absolute dollar terms also grew in each of the 3 quarters in 2023. Thirdly, we achieved yet another lowest OpEx in history in this quarter. Last but not least, we achieved adjusted EBITDA positive in this quarter. Therefore, this quarter has been great operationally and financially. And next, I'll spend more time to share with you on various aspects of the business. For our total group revenue, we achieved positive growth of 1% quarter-over-quarter. Now let me go through our different revenue stream. Developer Service revenue decreased 10% year-over-year, mainly due to the weakness seen in the value-added service, offset by the 12% growth in subscription services. Next is a detailed discussion of each business line. Subscription business revenue was CNY 46.7 million, up 12% year-over-year and 15% quarter-over-quarter. And this was mainly driven by increase in both ARPU and customer numbers year-over-year and quarter-over-quarter. And we are very pleased with the positive trending of this business where the revenue grew in every quarter since Q1 of 2023. As some of the notable new and renewal customers in this quarter include but not limited to City Bank. FAW Volkswagen (ETR:VOWG_p), FAW Toyota (NYSE:TM), Italian Bank, German Bank, just to name a few. Value-Added Service revenue were CNY 4.9 million, decreased by 58% quarter-over-quarter, which was due to the annual 618 online shopping festival in Q2 where advertisers increased their spending. However, no such event in Q2. Next, let me give you some updates on our overseas product EngageLab. We have hit a few key milestones in this quarter that we are very proud of. Firstly, we now have more than 100 customers signed up to purchase our EngageLab product. Secondly, these customers come from 16 different countries and regions, including Hong Kong and Taiwan. And in this quarter alone, we added 4 new countries where our EngageLab is made available to overseas customers. Thirdly, our cumulative signed contract value of EngageLab has exceeded CNY 10 million since the launch of this product in Q3 of 2022. So our going overseas initiative has clearly been a success. From our side, there are a few initiatives we will undertake to further our EngageLab expansion. This includes: one, we will continue to expand our reach inside each of the 16 countries and regions that we are servicing now, we aim to sign up more customers in this country; two, will expand to other new countries and region every quarter. Now let me recap on the EngageLab product we have. Our EngageLab product allows our customers in different countries and regions to engage with their own customers in an effective yet cost-efficient manner. Our one-stop EngageLab customer engagement platform enables our customers to use any of these following messaging channels, be it app push, web push and e-mail service, SMS service or Whatsapp business API. Since its launch in Q3 of 2022, we are very pleased with the progress to date. However, the work is not done. We will continue to improve our the service delivery of EngageLab so that we continue to expand across different continents in the near future. Next, I'll go over the revenue for Vertical Application, where it's made up of Financial Risk Management and market intelligence. Vertical Application had another great quarter. Sequentially, the quarterly revenue for Vertical Application has grown in each of the quarter in 2023. In Q3 alone, it grew another 6% quarter-over-quarter, fueled by the strong revenue growth from Financial Risk Management. For Financial Risk Management, revenue grew both year-over-year and quarter-over-quarter. In addition, the revenue recorded sequential growth in each of the 3 quarters in 2023. It was positively impacted by customer number growth of 18% year-over-year and 27% quarter-over-quarter. The addition of new customers' numbers signify that we are gaining more customers and as the things customers are renewing their services because this is important as it pave way for us to achieve revenue growth in the near future. This Q3 customers include, but not limited to [Indiscernible], [Indiscernible], [Indiscernible] and other more licensed financial institution throughout China. As for Market Intelligence, the revenue decreased 4% quarter-over-quarter due to the relatively quiet investment sentiment towards Chinese ADRs. Plus the demand for China-based APP data has also decreased accordingly. Nevertheless, we still managed to sign up some well-known large customers such as Mercedes, [Indiscernible] [Indiscernible] and other global hedge funds and overseas investment funds. I'll now go through some of the key expenses and balance sheet items. On to operating expenses, I'm again, we're pleased to share with you that in Q3 2023, we have yet another record low quarterly OpEx at CNY 60 million. The Q OpEx was down 25% year-over-year and 6% quarter-over-quarter. As I mentioned in the previous quarter, maintaining low level of OpEx is of critical importance to us. And this was the main reason why we are able to record lowest quarterly net loss since IPO and return adjusted EBITDA positive in this quarter. Let's now go to the individual OpEx category. In particular, R&D expenses decreased 14% year-over-year to CNY 32.8 million, mainly due to the lower headcount that reduced salary cost and associated compensation and a decrease in server depreciation expenses due to our own growing cloud initiatives. Selling and marketing expenses decreased by 10% year-over-year to CNY 21.8 million, mainly due to the decrease in salary costs resulted from head count reduction as we further make adjustment to operate at the optimal level. G&A expenses decreased by 69% year-over-year to CNY 5.4 million. This was mainly due to the onetime gain on disposal of fixed assets recognized in this quarter. Even if this one-off item is excluded, the G&A expenses still decreased by 37%, mainly due to the overall continuous effort to streamline expenses across the board. As I mentioned earlier, as a result of our focus to drive OpEx at optimal level, the adjusted EBITDA has recorded a positive CNY 4.5 million in this quarter. In plain English, it simply means that the group is making more than it is spending with surplus to keep in this quarter. And this is a great result for which I'm very proud of that what the team has done throughout the organization from a frontline sales team who have been going all out to acquire new customer and sign up new contracts, to the support team and the back office will diligently control our expenses. Next on to the balance sheet. I'll share 2 very important KPIs that we closely monitor. We continue to maintain a healthy AR turnover lease at 40 days, and this is relatively consistent year-over-year and quarter-over-quarter. We pride ourselves in achieving such a low AR turnover this comparing to the peers in the same industry. 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 customer for future contract performance, which continued to be a high balance of CNY 130.6 million. And this is the seventh consecutive quarter where our deferred revenue balance has exceeded CNY 130 million. And both our onshore and overseas customers are continuing to purchase and renew our services. More importantly, we are collecting cash in advance from customers. Next, total assets were at CNY 359.5 million as of September 30, 2023. This includes cash and cash equivalents of CNY 98.4 million accounts receivable of CNY 31.3 million, prepayments and other current assets at CNY 23.7 million. Fixed assets of CNY 1.9 million, long-term investment CNY 134.9 million, Goodwill at CNY 37.8 million and intangible assets of CNY 19.5 million. Total current liabilities were CNY 233.2 million as of September 30, 2023. This includes short-term loan of CNY 5 million, accounts receivable of CNY 20.2 million. Current operating liability of CNY 6.4 million, deferred revenue of CNY 130.6 million, accrued liabilities of CNY 71 million. Next, allow me to take 1 minute to recap 4 key achievements that we have had in this quarter that I would like that all of you to take away from this earnings call today. In this quarter: one, our Developer Service subscription and Financial Risk Management businesses recorded 3 consecutive revenue growth; two, we have more than 100 Engage less paying customer from 16 countries and region around the globe with cumulative signed contract value exceeded CNY 10 million; three, we have the highest quarterly gross profit and lowest quarterly OpEx in 2023; four, we have turned adjusted EBITDA positive. Lastly, before I conclude, I'll give a quick update on our share repurchase plan. In the quarter ended September 30, 2023, we have repurchased 854,000 ADS. Cumulatively, we have repurchased a total of 2.69 million ADS since the start of our program. And this concludes management's prepared remarks. We'll be happy to take questions now. Operator, please proceed.
Operator: [Operator Instructions] Our first question comes from Calvin Wong with Spica Capital.
Calvin Wong: I would like to ask few, if I may. First of all, congrats on your great Q3 results, it seems that the positive adjusted EBITDA has come earlier than we have discussed last quarter. So appreciate the management can share more how this is achieved and whether we will continue to see positive adjusted EBITDA going forward. And second question is about EngageLab business. It is great to see that you have signed up more than 100 overseas customers with more than CNY 10 million contract value within the year. So with this, I would like to hear from the management how do you go about expanding this EngageLab business outside of China? And how you managed to make such enroll in overseas markets. So two questions. One on adjusted EBITDA and, two, EngageLab business.
Shan-Nen Bong: Sure. Calvin, thanks for your question. Okay. Yes, you are right. We are very pleased to turn adjusted EBITDA positive in this quarter earlier than we have expected. In a very high summary level, it's a combination of where we drive the high-margin revenue business. We grew the gross profit and we tightly control the OpEx. I can elaborate more. So on the revenue front, as I touched on earlier in the ER call, both our Developer Subscription business and Vertical Application business recorded consecutive revenue growth in each quarter of 2023. And these are the high-margin business with gross margin in the range of 75% to 80%. And the Developer Service Subscription business are doing well, where we recorded both ARPU and customers growth quarter-over-quarter. And in particular, in this quarter, we completed a number of private cloud projects, which helped on the revenue growth. And similarly, for Financial Risk Management, we also had ARPU and revenue growth sequentially. And with the growth of this high-margin business, as a result, our gross profit grew as a result. So as for OpEx, we have another historical low OpEx at $60 million in Q3. So with the growth in revenue, and we managed to reduce the OpEx and eventually, the number just turned out to be a positive adjusted EBITA. And on the question for Q4 and beyond, I guess, typically, we don't give any guidance on adjusted EBITDA. At this stage, all I can say is we are working hard on growing our high-margin revenue and continue to control our OpEx. So this will answer to the first question. And the second question is EngageLab. Yes, it seems like EngageLab has attracted our attention. If I remember correctly, you asked this question last quarter as well. Again, we are very pleased on the progress to date. I guess looking back the most important decision that we have made is more than a year ago, we decided to venture overseas. And of course, it was not smooth selling in day 1 and the road been rough, but has been rewarding. If you remember, we started the business in Q3 of 2022 with 0 customers and 0 contract value, and we have done pretty well since then. And as to how we do the business overseas, I can share a little. Firstly, we invested in overseas infrastructure so that customers in overseas have the peace of mind on their data storage in the countries of their choosing, which means that whether you're in Southeast Asia, whether you're in Europe or Australia, we have the right set of combination of infrastructure for you or for our customers. And secondly, we work closely with the Chinese companies venturing and expanding overseas. And this group of customers are important because they are the one that we are providing services onshore. So they will always select us as their vendor of choice when they are overseas because they know who we are, we worked with them before, and we're confident with our service delivery. And thirdly, we also engage quality ISV, which is the independent software vendors in overseas market, too. And this ISV arrangement works perfectly for us for a couple of reasons: one, this ISV are well connected in their respective domestic market with many existing customers that they can help to sell our product; and two, as we present in different overseas market reduced our need to invest to set up offices, hire local sales team in the respective countries; and thirdly, to this ISV, it also help us -- save us to deal with individual customers on contract and negotiation on pricing, on cash collection, which save us on administrative burden. I guess in short, EngageLab overseas services -- or business is important for us, and it represents a new growth engine for us, which is less reliant on the Chinese mainland economic environment to a last degree. So it acts as a good buffer for us to continue on the revenue growth plan regardless of the situation onshore. So Calvin, I hope I answered your question.
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, 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 day. Thank you.
Operator: Thank you for participating. This does conclude the program, and you may now disconnect. Everyone, have a great day.
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